NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1GENERAL
Information on
the activities of Frutarom Industries Ltd. and its subsidiaries (hereafterthe Group).
Frutarom Industries Ltd.
(hereafter the Company) is a global company, founded in 1933. The Company itself and through its subsidiaries (Frutarom or the Group) develops, produces and markets flavors and fine ingredients used in the manufacture of
food, beverages, flavors, fragrances, pharma/nutraceuticals, cosmetics and personal care products. On December 31, 2017, Frutarom operated 72 production sites, 90 research and development laboratories, and 109 sales offices in Europe,
North America, Latin America, Israel, Asia, Africa and New Zealand, marketed and sold over 70,000 products to more than 30,000 customers in more than 150 countries and employed 5,250 people throughout the world.
Frutarom has two main activities: the Flavors activity and the Fine Ingredients activity (the core businesses). In addition, the
Company imports and markets raw materials that it does not itself manufactured, as part of the service offered to customers, which includes providing them comprehensive solutions for their needs. This activity is presented as part of trade and
marketing operations. Segment information for the reporting years is presented in note 6.
The Company is a limited liability company
incorporated and domiciled in Israel. The address of its registered office is 2 Hamenofim St., Herzeliya. The Companys controlling shareholder is ICC Industries Inc.
The Companys shares have been listed on the Tel-Aviv Stock Exchange (the TASE) since 1996. Since February 2005, Company
shares are also listed through Global Depository Receipts on the official list of the London Stock Exchange (the LSE).
In
recent years, with Frutaroms internal growth and acquisitions, seasonal effects on its results have diminished. Nonetheless, increased demand for beverages, yogurts, ice cream and other food products during the summer months brings about
higher sales and improvement to a certain extent in Frutaroms profitability margins in the second and third quarters of the year.
NOTE
2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
|
1)
|
The Groups financial statements as of December 31, 2017 and 2016 and for each of the three years in
the period ended December 31, 2017, are in compliance with International Financial Reporting Standards (hereafterIFRS) as issued by the International Accounting Standards Board (IASB) and interpretations to IFRS issued by the
International Financial Reporting Interpretations Committee (IFRIC).
|
The significant accounting policies described
below have been applied consistently in relation to all the years presented, unless otherwise stated.
The financial statements have been
prepared under the historical cost convention, subject to adjustments in respect of revaluation of amounts funded for severance pay, financial assets at fair value through profit or loss or available for sale presented at fair value.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires
management to exercise its judgment in the process of applying the Groups accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated
financial statements are disclosed in Note 4. Actual results could differ significantly from those estimates and assumptions.
F-12
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued):
|
2)
|
The period of the Groups operating cycle is 12 months.
|
|
3)
|
The Group analyses the expenses recognized in the income statements using the classification method based on
the functional category to which the expense belongs.
|
|
b.
|
Principles of Consolidation
|
|
1)
|
Business combinations and subsidiaries
|
Subsidiaries are all entities (including structured entities) over which the group has control. The group controls an entity when the group is
exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to
the group. They are deconsolidated from the date that control ceases.
The group applies the acquisition method to account for business
combinations. The consideration transferred for the acquisition of a subsidiary (hereafterthe acquired company) is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group.
The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement.
Acquisition-related costs are expensed as incurred.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a
business combination (except for certain exceptional items specified in IFRS 3Business Combinations) (as amended), hereafterIFRS 3R) are measured initially at their fair values at the acquisition date. The Group recognizes
non-controlling interest in an acquired company which are present ownership instruments and entitle their holders to a pro rata share of the entitys net assets in the event of liquidation in accordance with the non-controlling interests
proportionate share of the recognized amounts of acquirees identifiable net assets. All other components of non-controlling interest are measured at fair value unless another measurement basis is required by IFRSs
Any contingent consideration accrued to the Group as part of a business combination is measured at fair value at the date of business
acquisition. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognized in accordance with IAS 39 Financial Instruments either in profit or loss or as a change to other
comprehensive income. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity.
The excess of the overall amount of the transferred consideration, the amount of any non-controlling interest in the acquiree and the
acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Groups share of the identifiable net assets acquired and the liabilities assumed is recorded as goodwill(see also f(1) below).
In cases were the net amount at acquisition date of the identifiable assets acquired and of the liabilities assumed exceeds the overall
consideration that was transferred, the amount of non-controlling interest in the acquiree and the fair value as of date of acquisition of any previous equity interest in the acquiree as above, the difference is recognized directly in income or loss
at date of acquisition.
Inter-company transactions, balances, including income, expenses and dividends on transactions between group
companies are eliminated. Profits and losses resulting from inter- company transactions that are recognized in assets (in respect of inventory and fixed assets) are also
F-13
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued):
eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
An associate is any entity in which the Group has significant influence, but not control. Investment in an associate is accounted for using
the equity method of accounting.
According to the equity method, an investment is initially recorded at cost and the carrying amount is
subsequently adjusted to reflect the investors share of the net assets of the associate or joint venture since acquisition date.
The Group determines on each reporting date whether indications exist of impairment of its investment in the associate. If such indications
are present, the Group calculates the amount of impairment as a difference between the recoverable amount of investment (the higher of value in use and fair value less cost to sale) and its carrying amount, and recognizes an impairment loss in
profit or loss near to the share in income (loss) of associates accounted for using the equity method item.
Income or loss
arising from transactions between the Group and the companies are recognized in the financial statements of the Group only at the amount of the share in the associate or joint venture of investors that are unrelated to the Group. The share of the
Group in the profit or loss of the associate or joint venture in relation to those transactions is eliminated. When the investment is no longer accounted as an associate or joint venture the Group would stop using the equity method and the
investment would account as financial asset (IAS 39), as long as the associate or the joint venture has not became a subsidiary. The group would recognize profit or loss due to the difference between the fair-value of the remaining investment and
returns for realization to the book value of the investment as of the time of losing the significant influence. All amounts recognized in other comprehensive income due to the investment would account as if the related assets or liabilities were
realized (amounts that were recognized before as part of other comprehensive income might reclassified to profit or loss).
|
c.
|
Translation of Foreign Currency Balances and Transactions:
|
|
1)
|
Functional and Presentation Currency
|
Items included in the financial statements of each of the Groups entities are measured using the currency of the primary economic
environment in which that entity operates (the Functional Currency). The consolidated financial statements are presented in U.S. dollars, which is the Companys functional and presentation currency.
|
2)
|
Transactions and balances.
|
Foreign currency transactions in currencies different from the functional currency (hereafterforeign currency) are translated into the
functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and
liabilities denominated in foreign currencies are attributed to income or loss.
Gains and losses arising from changes in exchange rates
are presented in the income statement among financial expenses.
F-14
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued):
|
3)
|
Translation of Financial Statement of Group Companies
|
The results and financial position of all the Companys entities (none of which has the currency of hyperinflationary economy) that have
a Functional Currency different from the presentation currency are translated into the presentation currency as follows:
|
(a)
|
Assets and liabilities for each statement of financial position presented are translated at the closing rate at
the date of that statement of financial position;
|
|
(b)
|
Income and expenses for each income statement are translated at average exchange rates (unless this average is
not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates: in which case income and expenses are translated at the rate on the dates of the transactions);
|
|
(c)
|
All resulting exchange differences are recognized among other comprehensive income.
|
On consolidation of the financial statements, exchange differences arising from the translation of the net investment in foreign operations
and from loans and other currency instruments designated to serve as hedges to those investments are carried to other comprehensive income.
Goodwill and fair value adjustments arising on the acquisition of foreign operations are treated as assets and liabilities of the foreign
operations and translated at the closing rate. Exchange differences arising from translation as above are recognized in other comprehensive income.
|
4)
|
Information regarding exchange rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NIS
|
|
|
Pound Sterling
|
|
|
Euro
|
|
|
Swiss Franc
|
|
|
Ruble
|
|
Exchange rate as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
3.47
|
|
|
|
0.74
|
|
|
|
0.83
|
|
|
|
0.98
|
|
|
|
57.6
|
|
2016
|
|
|
3.85
|
|
|
|
0.81
|
|
|
|
0.95
|
|
|
|
1.02
|
|
|
|
61.27
|
|
2015
|
|
|
3.90
|
|
|
|
0.67
|
|
|
|
0.92
|
|
|
|
0.99
|
|
|
|
73.31
|
|
Increase (decrease) of the dollar during the year:
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
(9.8
|
)
|
|
|
(9.0
|
)
|
|
|
(12.2
|
)
|
|
|
(4.4
|
)
|
|
|
(5.9
|
)
|
2016
|
|
|
(1.5
|
)
|
|
|
20.6
|
|
|
|
3.5
|
|
|
|
2.7
|
|
|
|
(16.4
|
)
|
2015
|
|
|
0.3
|
|
|
|
5.2
|
|
|
|
11.6
|
|
|
|
0.4
|
|
|
|
22.9
|
|
|
|
|
|
|
|
|
|
NIS
|
|
|
Pound Sterling
|
|
|
Euro
|
|
|
Swiss Franc
|
|
|
Ruble
|
|
Average exchange rate during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
3.60
|
|
|
|
0.78
|
|
|
|
0.90
|
|
|
|
0.98
|
|
|
|
58.3
|
|
2016
|
|
|
3.84
|
|
|
|
0.74
|
|
|
|
0.90
|
|
|
|
0.99
|
|
|
|
66.23
|
|
2015
|
|
|
3.89
|
|
|
|
0.65
|
|
|
|
0.90
|
|
|
|
0.96
|
|
|
|
60.99
|
|
|
|
|
|
|
|
Increase (decrease) during of the dollar during the year:
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
(6.3
|
)
|
|
|
5.2
|
|
|
|
(0.7
|
)
|
|
|
(0.1
|
)
|
|
|
(12.0
|
)
|
2016
|
|
|
(1.2
|
)
|
|
|
12.7
|
|
|
|
0.3
|
|
|
|
2.5
|
|
|
|
8.6
|
|
2015
|
|
|
8.6
|
|
|
|
7.8
|
|
|
|
19.7
|
|
|
|
5.2
|
|
|
|
56.6
|
|
F-15
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued):
|
d.
|
Segment Reporting (see also note 1)
|
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker in the Group,
who is responsible for allocating resources and assessing performance of the operating segments.
The Group is organized and managed on a
worldwide basis in two major operating activities: Flavors and the Fine Ingredients. Another operation is Trade and Marketing.
|
e.
|
Property, Plant and Equipment:
|
The cost of a property, plant and equipment item is recognized as an assets only if: (a) it is probable that the future economic benefits
associated with the item will flow to the Group and (b) the cost of the item can be measured reliably.
Property, plant and equipment
is stated at historical cost less accumulated depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items and only when the two criteria mentioned above for recognition as assets are met.
The carrying amount of a replaced part is derecognized. All other repairs and maintenance are charged to the income statement during the
financial period in which they are incurred.
The cost of a property, plant and equipment item includes:
|
(a)
|
Its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts
and rebates.
|
|
(b)
|
Any costs directly attributable to bringing the asset to the location and condition necessary for it to be
capable of operating in the manner intended by management.
|
Subsequent costs are included in the assets carrying
amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.
Depreciation and impairment of property, plant and equipment are recognized in the income statement.
Land owned by the Group is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost
less their residual values over their estimated useful lives, as follows:
|
|
|
|
|
Percentage of
Annual
Depreciation
|
Buildings and land under financial lease
|
|
2-4
|
Machinery and equipment
|
|
5-10
|
Vehicles and lifting equipment
|
|
15-20
|
Computers
|
|
20-33
|
Office furniture and equipment
|
|
6-20
|
Leasehold improvements
|
|
See below
|
Leasehold improvements are amortized by the shorter of straight-line method over the terms of the lease or
estimated useful life of the improvements.
The assets residual values, the depreciation method and useful lives are reviewed, and
adjusted if appropriate, at least once a year.
F-16
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued):
An assets carrying amount is written down immediately to its recoverable amount if the
assets carrying amount is greater than its estimated recoverable amount (Note 2g).
Gains or losses on disposals are determined by
comparing proceeds with carrying amount. These are included in the income statement among other incomenet.
|
1)
|
The overall amount of goodwill arising on acquisition of a subsidiary, associated company or activity
represents the excess of the consideration transferred in respect of acquisition of a subsidiary over the net amount as of acquisition date of the identifiable assets acquired and the liabilities assumed. Goodwill on acquisitions of subsidiaries is
included in intangible assets.
|
For the purpose of impairment testing, goodwill acquired in a business
combination is allocated to each of the cash generating units (CGUs), or groups of CGUs that is expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level
within the entity at which the goodwill is monitored for internal management purposes and which is not larger than an operating segment (before aggregation) (see also g. below).
Impairment reviews of CGUs (or groups of CGUs) are undertaken annually and whenever there is any indication of impairment of CGU or group of
CGUs. The carrying value of the CGU (or group of CGUs) is compared to the recoverable amount, which is the higher of value in use and the fair value less costs to sell.
Any impairment loss is allocated to write-down the carrying amount of the CGUs assets (or CGUs) in the following order: first, the write
down of any goodwill allocated to a cash generating unit (or a group of CGUs); and afterwards to the remaining assets of the CGU or (group of CGUs) on a proportionate basis using the carrying amounts of each asset of the CGU (or group of CGUs). Any
impairment is recognized immediately as an expense and impairment of goodwill is not subsequently reversed.
|
2)
|
Product formulas acquired as part of a business combination transaction are initially recorded at fair value
and amortized on a straight-line basis over their useful lives of 20 years.
|
|
3)
|
Customer relationships acquired in a business combination are measured at fair value at the acquisition date.
The customer relations have a finite useful life and are carried at the recognized amount less accumulated amortization. Amortization is calculated using the straight-line method over the expected life of the customer relationship (10 years).
|
|
4)
|
Separately acquired trademarks and licenses are shown at historical cost. Trademarks and licenses acquired in a
business combination are recognized at fair value at the acquisition date. Trademarks and licenses have a definite useful life and are presented at cost less accumulated amortization. Amortization is calculated using the straight-line method to
allocate the cost of trademarks over their estimated useful lives (20 years).
|
Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software
licenses. These costs are amortized over their estimated useful lives (3-5 years) using the straight-line method.
Costs associated with
maintaining computer software programs are recognized as an expense as incurred.
F-17
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued):
Computer software development costs recognized as assets are amortized over their estimated
useful lives using the straight line method (3-5 years) commencing the point in time when the asset is available for use, i.e., it is in the location and condition necessary for it to be capable of operating in the manner intended by management.
|
6)
|
Research and Development
|
Research expenses are accounted for as expenses as incurred. Cost incurred in respect of development projects (attributable to the design and
testing of new or improved products) are recognized as intangible assets when the following criteria are met:
|
|
|
It is technically feasible to complete the intangible assets so that it will be available for use;
|
|
|
|
Management intends to complete the intangible asset and use it or sell it;
|
|
|
|
There is an ability to use or sell the intangible asset;
|
|
|
|
It can be demonstrated how the software product will generate probable future economic benefits;
|
|
|
|
Adequate technical, financial and other resources to complete the development and to use or sell the intangible
asset are available; and
|
|
|
|
The expenditure attributable to the intangible asset during its development can be reliably measured.
|
Other development costs that do not qualify for recognition as assets are recognized as cost as incurred. Development
costs previously recognized as an expense are not recognized as an asset on a subsequent period.
The Group fully
recognized the R&D expenses as incurred.
|
g.
|
Impairment of non-financial assets
|
Assets that have an indefinite useful life, such as goodwill, are not subject to amortization and are tested annually for impairment or more
often if events have occurred or changes in circumstances indicate that the carrying amount may not be recoverable.
Assets that are
subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognized for the amount by which the assets carrying amount exceeds its recoverable amount. The recoverable
amount is the higher of an assets fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).
Non-financial assets, other than goodwill, that were subject to impairment are reviewed for possible reversal of the impairment recognized in respect thereof at each statement of financial position date.
The groups research and development activities are supported in some of the countries in which it operates, and in Israel through the
Israel innovation authority by way of grants. Grants from the government are recognized at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions.
Government grants relating to costs are recognized in the income statement on a systematic basis over the periods in which the Group recognizes
the relating costs (the costs that the grants are intended to compensate).
F-18
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued):
The Group classifies its financial assets in the following categories: Financial assets at fair value through profit or loss, available for
sale assets, loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Group management determines the classification of its financial assets at initial recognition.
|
a)
|
Financial assets at fair value through profit or loss
|
This category includes two sub-categories: financial assets held for trade and financial assets designated at fair value through profit or
loss. A financial asset is classified into this category if it was acquired principally for the purpose of selling in the short term or if was designated to this category by management. Assets in this category are classified as current assets if
expected to be settled within 12 months, otherwise they are classified as non-current.
Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included
in current assets, except for maturities greater than 12 months after the statement of financial position date. These are classified as non-current assets. Receivables of the Group are classified as accounts receivable, Cash and
cash equivalents and long-term loans and other receivables in the statement of financial position (Note 2k below).
|
c)
|
Available-for-sale assets
|
Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other
categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the date of the statement of financial position, in which case they are classified as current assets.
|
2)
|
Recognition and measurement
|
Regular purchases and sales of financial assets are recognized on the settlement date, which is the date on which the asset is delivered to
the Group or delivered by the Group. Investments are initially recognized at fair value plus transaction costs for all financial assets not measured at fair value through profit or loss. Financial assets measured at fair value through profit or
loss, are initially recognized at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognized when the rights to receive cash flows there from have expired or have been transferred and the Group has
transferred substantially all risks and rewards of ownership. Financial assets at fair value through profit or loss and available for sale assets are subsequently carried at fair value. Loans and receivables are measured in subsequent periods at
amortized cost using the effective interest method.
Gains or losses that stem from changes in the fair value of financial assets at fair
value through profit or loss are presented in income statement under financial expensesnet in the period in which they incurred. Dividend income from financial assets at fair value through profit or loss are recognized in income
statement under other incomenet when the group is eligible to these payments.
F-19
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued):
Gains or losses that stem from changes in the fair value of financial assets at available
for sale assets are presented in statement of comprehensive income in the period in which they incurred. When selling available for sale assets, the accumulated gain or losses are reclassified from the comprehensive income to the profit or loss in
other expensesnet.
|
3)
|
Offsetting financial instruments
|
Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally
enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.
|
4)
|
Impairment of financial assets
|
|
a)
|
Financial assets at fair value through profit or loss
|
Financial assets are presented at amortized cost.
The Group assesses at the each statement of financial position date whether there is objective evidence that a financial asset or group of
financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial
recognition of the asset (a loss event) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The criteria that the Group uses
to determine that there is objective evidence of an impairment of a financial assets or group of financial assets include observable information that came to the attention of the Group in connection with the following loss events:
|
|
|
Significant financial difficulty of the issuer or obligor;
|
|
|
|
breach of contract, such as a default or delinquency in interest or principal payments;
|
|
|
|
The Group, for economic or legal reasons relating to the borrowers financial difficulty, granting to the
borrower a concession that the lender would not otherwise consider;
|
|
|
|
The disappearance of an active market for that financial asset because of financial difficulties;
|
|
|
|
Observable data indicating that there is a measurable decrease in the estimated future cash flows from a
portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio.
|
Where objective evidence for impairment exists, the amount of the loss is measured as the difference between the assets carrying amount
of the financial assets and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial assets original effective interest rate (i.e., the effective interest rate
computed for the asset upon initial recognition). The assets carrying amount is reduced and the amount of the loss is recognized in the income statement.
If the amount of impairment loss in a subsequent period decreases, and this decrease may be attributed to an objective event that took place
after the impairment was recognized (like improved credit rating of the borrower), reversing the previously recognized impairment loss is recorded in income statements.
F-20
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued):
|
b)
|
Available-for-sale financial assets
|
The group assesses at each date of the statement of financial position whether there is objective evidence that a financial asset or a group
of financial assets is impaired. For testing whether there is objective evidence for impairment of a debt instrument, the Group uses the criteria in (a) above. For investments in equity securities, in addition to the criteria in (a) above,
information regarding significant changes having adverse effect on the technological, economical or legal environment in which the issuer operates implicating that the cost of the equity investment might not be recovered as well as significant or
prolonged decline in the fair value of the security below its cost is also evidence that the assets are impaired.
If any such evidence
exists, the cumulative loss (recognized in other comprehensive income)measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or
lossis reclassified from equity and recognized in income or loss.
If, in a subsequent period, the fair value of a debt instrument
increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through the income statement. Impairment losses that are recognized in profit or
loss for investment in an equity instrument are not reversed through income or loss.
|
j.
|
Derivatives financial instruments, embedded derivatives and hedging activity
|
Hedge of net investment
Hedges
of a net investment in a foreign operation are accounted for similarly to cash flow hedges. Any gain or loss on the effective portion of the hedge is recognized in other comprehensive income. Gain or loss on the ineffective portion is recognized in
profit or loss. Gains or losses accumulated in equity are recycled to profit or loss when the foreign operation is disposed of or sold.
Inventories are measured at the lower of cost or net realizable value. Raw material cost is determined using the moving average
method.
The cost of finished goods and work in progress comprises raw materials, direct labor, other direct costs and related production
overheads (based on normal operating capacity) but excludes capitalization of borrowing costs.
Net realizable value is the estimated
selling price in the ordinary course of business, less the applicable and variable selling expenses.
Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection
is expected in one year or less they are classified as current assets. If not, they are classified as non-current assets.
Trade
receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment of accounts receivable (hereafterprovision for impairment or
provision for impairment of accounts receivable). As to the way the impairment provision is determined and accounting treatment applied thereto subsequently see i4) above.
F-21
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued):
|
m.
|
Cash and Cash Equivalents
|
Cash and cash equivalents include cash in hand, short-term bank deposits and other highly liquid short-term investments, the maturity of which
does not exceed three months, bank overdrafts (repayable upon demand).
Ordinary shares of the Company are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in the equity as a deduction, net of tax, from the
proceeds of issuance.
Where any Group company purchases the Companys equity share capital (treasury shares), the consideration paid,
including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the companys equity holders until the shares are cancelled or reissued. Where such shares are subsequently reissued, any
consideration received, net of any directly attributable incremental transaction costs and the related income tax effects are included in equity. Any difference between the cost of acquisition of the treasury shares and the consideration is carried
to premium on shares.
Trade payables are obligations of the Group to pay for goods or services that have been acquired in the ordinary course of business from
suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less.
If not, they are classified
as non-current liabilities.
Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the
effective interest method.
Loans are recognized initially at their fair value, net of transaction costs incurred. Loans are subsequently measured at amortized cost; any
difference between the consideration (net of transaction costs) and the redemption value is recognized in the income statement over the period of the loan using the effective interest method.
Loans are classified as current liabilities unless the Group has an unconditional right to defer settlement of the loans for at least 12 months
after the end of the reporting period, in which case they are classified as non-current liabilities.
|
q.
|
Current and Deferred Income Taxes
|
The tax expenses for the reported years comprise of current and deferred tax. Tax is recognized in the income statement, except for taxes
related to equity and other comprehensive income items.
The current income tax charge is calculated on basis of the tax laws enacted or
substantially enacted at the statement of financial position date in the countries where the Company and the subsidiaries operate and generate taxable income. Management periodically evaluates tax issues related to its taxable income, based on
relevant tax law, and makes provisions in accordance with the amounts payable to the Income Tax Authorities.
F-22
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued):
Deferred income tax is recognized using the liability method, on temporary differences
arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Nevertheless, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a
transaction other than a business combination that at the time of the transaction affect neither accounting nor taxable income.
Deferred
income tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. The amount of deferred income taxes is determined using tax rates (and laws)
that have been enacted or substantially enacted by the statement of financial position date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred income tax is not
calculated on temporary differences arising on investments in subsidiaries, as long as the timing of reversal of the differences is controlled by the Group and it is expected that no such reversal will take place in the foreseeable future.
The group recognizes deferred income tax assets in respect of temporary differences deductible for tax purposes only if it is expected that the
temporary difference is revered in the foreseeable future and to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.
Deferred income tax assets and liabilities are offset only if:
|
-
|
There is a legally enforceable right to offset current tax assets against current tax liabilities; and
|
|
-
|
When the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation
authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
|
As stated in Note 13c, upon distribution of dividends from tax-exempt income of approved enterprises or benefited
enterprises, the amount distributed will be subject to tax at the rate that would have been applicable had the company not been exempted from payment thereof. The amount of the related tax is charged as an expense in the statement of
comprehensive income, when such dividend is distributed.
|
1)
|
Pension Obligations and retirement benefits
|
The companies in the group operate a number of post-employment employee benefit plans, including defined benefit and defined contribution
plans.
A defined contribution plan is a pension plan under which the group pays fixed contributions into a separate entity.
The group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all
employees the benefits relating to employee service in the current and prior periods.
A defined benefit plan is a pension plan that is
not a defined contribution plan.
The companies in the group operate a number of pension plans. The plans are funded through payments to
insurance companies or pension funds that are managed in trust.
F-23
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued):
According to their terms, those pension plans satisfy the above definition of a defined
contribution plan.
According to labor laws and agreements in Israel and the practices of the companies in the Group, Group companies are
obligated to pay retirement benefits to employees dismissed or retiring in certain circumstances.
According to the obligation of group
companies to employees who participate in a defined benefit plan, the amounts of benefits those employees are entitled to upon retirement are based on the number of years of services and the last monthly salary.
The obligation of the group companies to all other employees is a defined contribution plan, in which regular contributions are made to a
separate and independent entity, and the companies of the Group have no legal or constructive liability to make any further payments if the assets of the funds are insufficient to pay all employees the benefits for work services in the current and
past periods.
The total retirement benefit obligation presented in the statement of financial position is the present value of defined
benefit contribution as of the date of financial position, less the fair value of plan assets. The defined contributions benefit is measured on an annual basis by an actuary using the projected unit credit method.
The present value of the liability is determined by discounting expected future cash flows (after taking into account the expected rate of
payroll hikes) based on the interest rate of government/corporate bonds denominated in the currency in which the benefits will be paid and whose terms to maturity approximate the term of retirement benefit obligation.
According to IAS 19 Employee Benefits, the discount rate used for calculating the actuarial obligation is determined by using the
market return of high-quality corporate bonds on the date of the statement of financial position. However, IAS 19 indicates that in countries where there is no deep market in such bonds, the market rates on government bonds are used.
The group recognizes remeasurements of net obligations (the asset) for defined benefit plan to other comprehensive income in the period in
which they incurred. Those remeasurements are created as a result of changes in actuary assumptions, difference between past assumptions and actual results and differences between plan assets return and the amounts included in net interest on net
liabilities (the asset) for defined benefit. Past-service costs are recognized immediately in income. Amount funded for severance benefits are measured at fair value. The amounts funded are plan assets as defined by IAS 19, and therefore were offset
from the balance of retirement benefit obligation for presentation purposes in the statement of financial position.
As discussed above,
the group purchase insurance policies and make contributions to pension and severance pay funds to fund its obligation under defined contribution plan. The group has no further payment obligations once the contributions have been paid. The
contributions are defined as an expense for employee benefits concurrently to receiving services from employees that entitle them for contributions. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in
the future payments is available.
|
2)
|
Vacation and Recreation Fees
|
Under the law in various countries, employee is entitled for vacation days and recreation fees (in Israel), both computed on an annual basis.
The entitlement is based on the period of employment.
F-24
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued):
The Group records a liability and an expense in respect of vacation and recreation fees, based on the benefit accumulated for each employee.
Some of the Groups employees are entitled to receive an annual bonus in accordance with the bonuses plan determined by Group management
for that year. The Group provides for payment of the bonus in accordance with meeting the targets of the plan and in accordance with Groups estimate as to the total amount of bonuses to be paid to employees.
|
s.
|
Share-Based Compensation
|
The group operates a number of equity-settled, share-based compensation plans, under which the entity receives services from employees as
consideration for equity instruments (options) of the Company. The fair value of the employee services received in exchange for the grant of the options is recognized as an expense over the vesting period. The total amount to be expensed is
determined by reference to the fair value of the options granted:
|
|
including any market performance conditions (for example, an entitys share price);
|
|
|
Excluding the impact of any service and non-market performance vesting conditions (for example, profitability,
sales growth targets and remaining an employee of the entity over a specified time period);
|
Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events and it is probable that an
outflow of resources will be required to settle the obligation and it is possible to prepare a reliable estimation of the amount of liability.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the
class of obligations as a whole.
Provisions are measured at the present value of the cash flow expected to be required to settle the
obligation using a pre-tax discount rate that reflects current market assessments of the time value of money and the risk specific to the obligation. The increase in the provision due to passage of time is recognized as interest expense.
|
u.
|
Revenue Recognition Policy
|
Revenue is measured at the fair value of the consideration received or receivable for the sale of goods in the ordinary course of business.
Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group.
Revenues from sale
of goods are recognized by the Group when all of the following conditions are met:
|
(a)
|
The significant risks and rewards of ownership of the goods have been transferred by the Group to the buyer;
|
|
(b)
|
The group retains neither continuing managerial involvement to the degree usually associated with ownership nor
effective control over the goods sold.
|
|
(c)
|
The amount of revenues can be reliably measured.
|
|
(d)
|
It is probable that future economic benefit relating to the transaction will flow to the Group; and
|
|
(e)
|
The costs incurred or to be incurred in respect of the transaction can be measured reliably.
|
F-25
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued):
The amount of revenue is not considered to be reliably measurable until all contingencies
relating to the transaction have been resolved. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.
The products are occasionally sold with volume discounts; customers have a right to return faulty products. Sales are recorded based on the
selling price, net of the estimated volume discounts and returns at the time of sale. Accumulated experience is used to estimate and provide for the discounts and returns. The volume discounts are assessed based on anticipated annual purchases. No
element of financing is present as the sales are made with an average credit term, which is not higher than the market practice.
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.
Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.
Long-term lease contracts for lease of land from the Israel Land Administration and from other countries are presented among fixed assets.
Basic:
The computation of basic
earnings per share is based, as a general rule, on the profit attributable to holders of ordinary Company shares divided by the weighted average number of ordinary shares in issue during the period, excluding Company shares held by group
subsidiaries (Notes 2m).
Fully Diluted:
When calculating the diluted earnings per share, the Group adds to the average number of shares outstanding that was used to calculate the
basic earnings per share also the weighted average of the number of shares to be issued assuming the all shares that have a potentially dilutive effect would be converted into shares. The potential shares, as above are only taken into account in
cases where their effect is dilutive (reducing the earnings per share or increasing the loss per share).
The weighted average number of
shares used in calculating Basic and Diluted earnings per share is as follows:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
Diluted
|
|
|
|
In thousands
|
|
|
In thousands
|
|
Year-end December 31:
|
|
|
|
|
|
|
|
|
2017
|
|
|
59,342
|
|
|
|
59,632
|
|
2016
|
|
|
58,916
|
|
|
|
59,494
|
|
2015
|
|
|
58,573
|
|
|
|
59,141
|
|
Dividend distribution to the Companys owners is recognized as a liability in the Groups statement of financial position on the date
on which the dividends are approved by the Groups Board of Directors. Dividend paid includes an erosion component (from date of approval of dividend through date of payment thereof).
F-26
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued):
|
y.
|
New standards, amendments and interpretations of existing standards, which have not yet become effective and
not been early adopted by the Company:
|
|
1.
|
Amendment to IFRS 9Financial Instruments (hereafterIFRS 9 or the
standard):
|
IFRS 9, Financial instruments, addresses the classification, measurement and
recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July 2014. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but
simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortized cost, fair value through OCI and fair value through P&L. The basis of classification depends on the entitys
business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in
fair value in OCI without recycling.
There is now a new expected credit losses model that replaces the incurred loss impairment model
used in IAS 39. The new impairment model establishes a three-stage approach, based on changes in expected credit risk of a financial instrument. Each stage determines how to measure credit losses and how to apply the effective interest method. In
addition, for financial assets that have no material financing element, such as receivables, it is possible to implement a simpler method. At initial recognition of a financial asset, an entity recognizes a loss allowance equal to 12 months expected
credit losses, or the loss expected over the life of the instruments for accounts receivables, unless the asset is considered to have an credit impaired rating.
For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in
other comprehensive income, for liabilities designated at fair value through other comprehensive income.
IFRS 9 simplifies the
requirements for testing hedge effectiveness by dropping the strict quantitative thresholds for testing hedge effectiveness. IFRS 9 requires economic relationship between the underlying hedged risk component and the hedging instrument, and that the
hedge ratio is the same used for risk management purposes. The standard retains the requirement for maintaining documentation throughout the hedge period, but documentation is different than that required by IAS 39.
IFRS 9 will be applied retrospectively for annual reporting periods beginning on or after January 1, 2018. Early adoption is permitted.
According to the Company assessment, the adoption of IFRS 9 is not expected to have material impact on the financial statements.
|
2.
|
IFRS 15 Revenue from Contracts with Customers (hereinafterIFRS 15)
|
IFRS 15 will replace after its first-time adoption the guidance on revenue recognition in current IFRSs.
The core principle of IFRS 15 is that revenue from contracts with customers should be recognized using the method that best depicts the
transfer of control of goods and services to the customer, the amount of consideration that the entity expects to be entitled to in exchange for transferring promised goods or services to a customer.
IFRS 15 has a single model for revenue recognition, based on a five-step approach:
|
(1)
|
Identify the contract(s) with the customer
|
F-27
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued):
|
(2)
|
Identify the separate performance obligations in the contract
|
|
(3)
|
Determine the transaction price
|
|
(4)
|
Allocate the transaction price to separate performance obligations
|
|
(5)
|
Recognize revenue when (or as) each performance obligation is satisfied
|
IFRS 15 covers accounting for a variety of issues related to implementation of that model, including: recognition of contractual variable
consideration, adjustment of contractual transaction price to reflect the time value of money, and cost of obtaining and fulfilling the contract.
The standard expands the disclosure requirements about revenue, and, among other things, requires quantitative and qualitative information
about significant management judgments that were considered for determining the amount of revenue recognized.
On July 22, 2015, the
IASB decided to defer the effective date of the standard by one year, such that the standard will be applied retrospectively for annual periods beginning on or after January 1, 2018 with some exceptions as provided in the transition provisions
of IFRS 15. According to the provisions of IFRS 15, early adoption is permitted.
Group management believes that the new standard is
not expected to have material impact on the financial statements.
IFRS 16 will replace upon first-time implementation the existing guidance in IAS 17Leases (hereafterIAS
17). The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases, and is expected to have material impact mainly on the accounting treatment applied by the lessee in a lease transaction.
IFRS 16 changes the existing guidance in IAS 17 and requires lessees to recognize a lease liability that reflects future lease payments and a
right-of-use asset in all lease contracts (except for the following), with no distinction between financing and capital leases. IFRS 16 exempts lessees in short-term leases or the when underlying asset has a low value.
IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as
operating leases or finance leases, and to account for those two types of leases differently.
IFRS 16 also changes the definition of a
lease and the manner of assessing whether a contract contains a lease.
IFRS 16 will be effective retrospectively for annual
periods beginning on or after January 1, 2019, taking into account the reliefs specified in the transition provisions of IFRS 16. Under the provisions of IFRS 16, early adoption is permitted only if IFRS 15 has also been applied. The group has
decided to early adopt the standard, while applying the accumulated impact as of January 1, 2018 and additional reliefs, as the standard allows. The implementation is expected to impact the accounting of lease agreements: real-estate, equipment
and vehicles. Starting January 1, 2018, the Company is going to recognize assets and liabilities due to leases, which until then were accounted as operating leases.
According to the Company assessment and the information available as of the date of this report:
|
1)
|
During the first-time implementationIncrease of approx. $37 million in assets and liabilities.
|
F-28
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued):
|
2)
|
Decrease of operational expenses during 2018 amounting approx. $9 million to $11 million and an increase of
depreciation and financial expenses in a Appx amount. Additional impact is expected to the increase of cash flow from operating activities and a decrease in the cash flow from financing activities amounting $9 million to $11 million.
|
|
3)
|
The assessment is based on the information currently available and changes in lease agreements and additional
examination could have impact on the final amounts.
|
NOTE 3FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
:
|
a.
|
Financial Risk Management
|
|
1)
|
Financial Risk Factors
|
The Groups activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk,
cash flow interest rate risk and price risk), credit risk and liquidity risk. The Groups overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Groups
financial performance.
Risk management is carried out under policies approved by the Board of Directors and senior management. These
policies cover specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of non-derivative financial instruments, and investment of excess liquidity. Group policies also cover areas such as cash management and raising short
and long-term debt.
The Groups business is characterized by considerable dispersion. The Group produces tens of thousands of
products intended for tens of thousands of customers throughout the world, using tens of thousands of raw materials purchased from a wide range of suppliers worldwide. As stated, the Group is not significantly dependent on any of its customers,
products or suppliers.
Discussions on implementing the risk management policy as relates to currency exposure and interest are conducted
by the Groups management once each quarter.
The Group operates globally and is exposed to movements in foreign currencies affecting its net income and financial position, as expressed in
U.S. dollars.
Transaction exposure arises because the equivalent amount in local currency paid or received in transactions denominated in
foreign currencies may vary due to changes in exchange rates. Most Group entities produce their income primarily in the local currency. A significant amount of expenditures, especially for the purchase of goods for resale are in foreign currencies.
Similarly, transaction exposure arises on net balances of financial assets held in foreign currencies. Since raw materials purchases for the Groups production are also conducted in various currencies, currency exposure is reduced.
The Groups subsidiaries manage this exposure locally. In addition, Group management monitors total global exposure of the Group.
Translation exposure arises from the consolidation of the Foreign Currency denominated financial statements of the Companys
subsidiaries. The effect on the Groups consolidated comprehensive income is shown as a currency translation difference.
F-29
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
(continued):
The following table presents currency exposure in respect of balance denominated in
currencies that are different than the functional currency of the reporting company and also the effect on income after taxes. At December 31, 2017 and 2016, if the currencies specified below had weakened/strengthened by 1% against the other
functional currencies of group companies, with all other variables unchanged:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 2017
|
|
|
|
U.S. dollars in thousands
|
|
|
|
|
|
|
Pound
|
|
|
|
|
|
Swiss
|
|
|
|
NIS
|
|
|
Sterling
|
|
|
Euro
|
|
|
Franc
|
|
Financial asset (liabilities), net
|
|
|
(22,927
|
)
|
|
|
3,531
|
|
|
|
(81,296
|
)
|
|
|
3,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) from change:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of 1% weakening
|
|
|
229
|
|
|
|
(35
|
)
|
|
|
813
|
|
|
|
(35
|
)
|
Impact 1% strengthening
|
|
|
(229
|
)
|
|
|
35
|
|
|
|
(813
|
)
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 2016
|
|
|
|
U.S. dollars in thousands
|
|
|
|
|
|
|
Pound
|
|
|
|
|
|
Swiss
|
|
|
|
NIS
|
|
|
Sterling
|
|
|
Euro
|
|
|
Franc
|
|
Financial asset (liabilities), net
|
|
|
(3,444
|
)
|
|
|
711
|
|
|
|
(195,240
|
)
|
|
|
911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) from change:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of 1% weakening
|
|
|
34
|
|
|
|
(7
|
)
|
|
|
1,952
|
|
|
|
(9
|
)
|
Impact 1% strengthening
|
|
|
(34
|
)
|
|
|
7
|
|
|
|
(1,952
|
)
|
|
|
9
|
|
*
|
Represents amounts lower than $1 thousand.
|
|
2)
|
Cash Flow Risk Relating to Interest Rates
|
Since on a current basis the Group does not have significant assets bearing interest, its revenues and operating cash flow are not dependent
on changes in interest rates.
The Groups interest rate risk arises from long-term and short-term borrowings. Borrowings received at
variable rates expose the Group to cash flow interest rate risk.
The Group analyses its interest rate exposure. Various scenarios are
simulated taking into consideration refinancing, renewal of existing positions and alternative financing. Based on these scenarios, the Group calculates the impact on profit and loss of a defined interest rate shift. For each simulation, the same
interest rate shift is used for all currencies. The scenarios are run only for liabilities that represent the major interest-bearing positions.
Based on the simulations performed, the impact on post tax profit for the year 2017 of a 0.1% shift in interest rate on loans would have been
a change of $362 thousand (2016$258 thousand; 2015$233 thousand).
Credit risk arises from the possibility that the counter-party to a transaction may be unable or unwilling to meet their obligations causing a
financial loss to the Group.
Trade receivables are subject to a policy of active risk management, which focuses on the assessment of
country risk, credit limits, ongoing credit evaluation and accounting monitoring procedures.
F-30
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
(continued):
There are no significant concentrations within trade receivables of counter-party credit
risk due to the large number of customers that the Group deals with and their wide geographical spread. Country risk limits and exposures are continuously monitored. Collateral is generally not required.
The provision for impairment of trade receivables is determined on basis of a periodic test of all amounts due.
The exposure of other financial assets and liabilities to credit risk is controlled by setting a policy for limiting credit exposure to
counter-parties, continuously reviewing credit ratings, and limiting individual aggregate credit exposure accordingly.
Group entities
must have sufficient availability of cash to meet their obligations. Each company is responsible for its own cash management, including the short-term investment of cash surpluses and the raising of loans to cover cash deficits, subject to Group
policies and to monitoring of Group management.
The table presented below classifies the Groups financial liabilities into relevant
maturity groupings based on the remaining period at December 31, 2017 to the contractual maturity date. Group entities do not have derivative financial liabilities. The amounts presented in the table represent the projected undiscounted cash
flows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 1
year
|
|
|
Between 1
and 3 years
|
|
|
Between 3
and 5 years
|
|
|
|
U.S. dollars in thousands
|
|
As of December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
BorrowingsVariable interest
|
|
|
311,215
|
|
|
|
157,598
|
|
|
|
31,973
|
|
BorrowingsFixed interest
|
|
|
67,030
|
|
|
|
54,774
|
|
|
|
22,112
|
|
Liability for put option for the shareholders of a subsidiary
|
|
|
7,560
|
|
|
|
50,367
|
|
|
|
51,011
|
|
Accounts payable and accruals
|
|
|
231,813
|
|
|
|
926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
617,618
|
|
|
|
263,665
|
|
|
|
105,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
BorrowingsVariable interest
|
|
|
203,233
|
|
|
|
157,406
|
|
|
|
48,282
|
|
BorrowingsFixed interest
|
|
|
34,074
|
|
|
|
71,959
|
|
|
|
28,418
|
|
Liability for put option for the shareholders of a subsidiary
|
|
|
40,350
|
|
|
|
18,261
|
|
|
|
31,746
|
|
Accounts payable and accruals
|
|
|
190,427
|
|
|
|
21,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
468,084
|
|
|
|
268,731
|
|
|
|
108,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
c)
|
Liabilities in respect of put options
|
As part of several acquisition transactions, former owners of the acquired entities were granted an option to sell the Company their remaining
shares, and the Company has an option to buy those shares; (the price and the conditions of the call options are identical to the price of the put option). This mechanism exists in the following acquisitions:
1. Sonarome Private Ltd. (Sonarome).
2. Amco SP (Amco), see note 5j.
F-31
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
(continued):
3. Ingenieria Alimentaria S.A. De C.V (Piasa), see note 5p.
4. Western Flavors Fragrances Production Joint Stock Company, (WFF), see note 5d.
5. Brasil Industria E Comercio Ltda, (SDFLC), see note 5e.
6. Turpaz Perfume and Flavor Extracts Ltd. (Turpaz), see note 5h.
As of December 31, 2017, the total amount of the PUT options is $93,984 thousand. This liability was estimated in accordance with the
average EBITDA to be achieved during the period of the agreement. The annual weighted discount rate of the option is 3.3%.
The main
unobservable data used by the Company for the purpose of valuing the option is the future EBITDA to be achieved. For the purpose of estimating the value of the liabilities for the options and their update, the Company used its current business
results and its forecast.
Groups objective is to maintain, as possible, stable capital structure. In the opinion of Groups management, its current capital
structure is stable. Consistent with others in the industry, the Group monitors capital, on the basis of the gearing ratio.
This ratio is
calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including current and non-current borrowings as shown in the consolidated statement of financial position) less cash and cash equivalents. Total
capital is calculated as equity as shown in the consolidated statement of financial position plus net debt.
The gearing ratios
at December 31, 2017 and 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
U.S. dollars in thousands
|
|
Total borrowings (Note 9)
|
|
|
634,286
|
|
|
|
533,780
|
|
Lesscash and cash equivalents (Note 19)
|
|
|
(118,214
|
)
|
|
|
(113,528
|
)
|
|
|
|
|
|
|
|
|
|
Net debt
|
|
|
516,072
|
|
|
|
420,252
|
|
Total equity
|
|
|
878,913
|
|
|
|
664,604
|
|
|
|
|
|
|
|
|
|
|
Total capital
|
|
|
1,394,985
|
|
|
|
1,084,856
|
|
|
|
|
|
|
|
|
|
|
Gearing ratio
|
|
|
37.0
|
%
|
|
|
38.7
|
%
|
|
|
|
|
|
|
|
|
|
NOTE 4CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates, by definition, may not necessarily be
equal to the related actual results. The estimates and assumptions with significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
|
a.
|
Estimate of Impairment of Goodwill
|
The Group tests annually for impairment of goodwill, in accordance with the accounting policy states in note 2g. The recoverable amounts of
cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates (Note 8).
F-32
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 4CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
(continued):
|
b.
|
Taxes on Income and Deferred Taxes
|
The Group is subject to income taxes in a large number of countries. Judgment is required in determining the worldwide provision for income
taxes. The Group is involved in transactions and computations in which final tax liabilities cannot be determined with certainty in the normal course of business. The Group recognizes liabilities for anticipated tax audit issues based on estimates
of whether additional taxes will be due as a result of the tax audits. Where the final tax outcome of these matters, determined by tax authority is different from the amounts that were initially recorded, such differences may impact the provisions
for income tax and deferred tax liabilities in the period in which such determination is made.
The Group recognizes deferred tax assets
and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. The Group regularly reviews its deferred tax assets for recoverability, based on historical taxable income,
projected future taxable income, the expected timing of the reversals of existing temporary differences and the implementation of tax planning strategies. If the Group is unable to generate sufficient future taxable income, or if there is a material
change in the actual effective tax rates or time period within which the underlying temporary differences become taxable or deductible, the Group could be required to eliminate a portion of the deferred tax asset resulting in an increase in its
effective tax rate and an adverse impact on operating results.
The present value of the liabilities in respect of severance pay is dependent on several factors that are determined on an actuarial basis in
accordance with various assumptions. The assumptions used in the calculation of the net cost (income) in respect of severance pay include, inter alia, the yield rate and discount rate. Changes in those assumptions may influence the carrying amount
of the assets and liabilities in respect of severance pay.
The assumption regarding the appropriate discount rate is determined by
external actuaries at the end of each year. This discount rate is used in determining the estimated updated value of the future cash flows that would be required to cover the severance pay liabilities. The Company uses the market of high-quality
corporate bonds when this market available, and when it is not, government bonds are used instead. Therefore, in determining this rate, the Group uses interest rate in the currency in which the benefits will be paid.
Other key assumptions relating to severance pay liabilities, such as future payroll raise and retirement rates, are partially based on
existing market conditions on that time and on past experience.
Provision for legal liabilities are recorded in the books of accounts in accordance with Group managements judgment, based on the
opinion of its legal advisors, regarding the likelihood that cash outflows will needed to meet the liabilities, and on the basis of the estimate determined by the management regarding the present value of the expected cash outflows required to meet
the existing liabilities.
F-33
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5BUSINESS COMBINATIONS:
|
a.
|
Acquisition of remaining share capital of subsidiaries
|
|
1)
|
Acquisition of the remaining holdings of Vantodio
:
|
On February 1, 2017, The Company exercised its option to acquire the remaining 25% equity interest in Vantodio Holdings
Limited, which holds the Russian group Protein Technologies Ingredients, from the end of the third year, at a multiple of between 6 and 7 of the average annual EBITDA achieved in the three years prior to the exercise of the option. The
Company holds from that date 100% of the share capital of Vantodio. The option was exercised for a total consideration of approximately $40 million. The purchase of the remaining 25% interest stake was financed through bank credit.
|
2)
|
Acquisition of the remaining holdings of Nutrafur
|
On June 12, 2017, the Company signed, through a subsidiary, an agreement for the purchase of approx. 21% of the shares of the Spanish
company Nutrafur S.A. (Nutrafur) from that companys founding families for US$2.4 million (approx. 2.1 million) such that Frutarom now holds 100% of Nutrafur shares (On September 3, 2015, the Company acquired approx. 79%
of the shares of Nutrafur). The transaction was closed upon signing.
|
3)
|
Acquisition of the remaining holdings of BSA
|
On July 5, 2017, Frutarom purchased a 5% interest stake in the Canadian company Les Ingredients Alimentaires BSA Inc. (BSA)
for approximately US$2 million (approx. CAD 2.75 million) and thereby completed acquisition of 100% of the shares in BSA, and this is further to the purchase of 95% of BSAs share on May 15, 2015.
On February 8, 2017, the Company signed, through a subsidiary, an agreement for the purchase of 100% of the shares of the South African
companies Unique Flavors Proprietary Limited and Unique Food Solutions Proprietary Limited (collectively: Unique) in consideration (including the taking on of debt) for approx. ZAR 90 million (approx. USD 6.4 million), of which
approximately USD 1 million will be paid as deferred payment. The purchase agreement includes a mechanism for future consideration contingent on Uniques future business performance at approx. ZAR 6.1 million (approx. USD 493
thousand), which was paid after the balance sheet date. The transaction was financed through bank debt.
Unique, which was founded in 2001,
is engaged in the development, production and marketing of flavors, with emphasis on savory flavors (the non-sweet spectrum of flavors) and on sweet taste solutions. Unique has an R&D, production and marketing site in Pretoria, South Africa,
near Frutaroms new South African site, and a wide customer base in South Africa and other important emerging markets of the Sub-Saharan region like Ghana, Malawi, Zimbabwe and Mozambique. Unique has a workforce of 64 people.
The cost of acquisition was allocated to the tangible assets, intangible assets and liabilities acquired based on their fair value at the time
of acquisition. The intangible assets that were recognized include: product formulas valued at ZAR 14,525 thousand ($1,080 thousand), customer relations at ZAR 16,929 thousand ($1,258 thousand), goodwill at ZAR 66,790 thousand ($4,966
thousand) and software at ZAR 108 thousand ($8 thousand). Product formulas and customer relations are amortized over economic useful lives of 20 years and 10 years, respectively.
F-34
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5BUSINESS COMBINATIONS
(continued):
Set forth below are the assets and liabilities of Unique at the date of acquisition:
|
|
|
|
|
|
|
Fair value
|
|
|
|
U.S. dollars
In thousands
|
|
Current assets:
|
|
|
|
|
Trade
|
|
|
2,114
|
|
Inventory
|
|
|
314
|
|
Others
|
|
|
97
|
|
Non-current assets:
|
|
|
|
|
Property, plant and equipment
|
|
|
173
|
|
Intangible assets
|
|
|
7,312
|
|
Current liabilities:
|
|
|
|
|
Trade payables
|
|
|
(1,567
|
)
|
Other account payables
|
|
|
(1,326
|
)
|
Short-term loans
|
|
|
(48
|
)
|
Non-current liabilities:
|
|
|
|
|
Deferred taxes
|
|
|
(700
|
)
|
|
|
|
|
|
|
|
|
6,369
|
|
|
|
|
|
|
From the date it was included in the consolidated financial statements of the Company through December 31,
2017, the acquired operations have yielded revenues of $9,159 thousand. In the course period, Unique and Frutarom South Africa were merged into a single entity, which operates under a single management.
|
C.
|
Acquisition of Rene Laurent
|
On April 4, 2017, the Company signed an agreement for the purchase of 100% of the French Company René Laurent in
consideration of approx. EUR 20 million (approx. USD 21 million). The transaction was closed upon the signing of the agreement and was financed through bank debt.
Founded in 1885, René Laurent engages in the development, production and marketing of flavors and natural extracts. René Laurent
has two production sites (one focusing on sweet flavors and the other on savory flavors), and an R&D center near Cannes, in Grasse, France, plus a production site near Casablanca, Morocco. René Laurent has approximately 100 employees.
The cost of acquisition was allocated to tangible assets, intangible assets and liabilities acquired based on their fair value at the time
of the acquisition. The intangible assets that were recognized include: product formulas amounting to EUR 1,763 thousand ($1,880 thousand), customer relations amounting to EUR 2,870 thousand ($3,060 thousand) and goodwill amounting to EUR
9,553 thousand ($10,186 thousand). Product formulas and customer relations are amortized over economic useful lives of 20 years and 10 years, respectively.
F-35
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5BUSINESS COMBINATIONS
(continued):
Set forth below are the assets and liabilities of Rene Laurent at the date of acquisition:
|
|
|
|
|
|
|
Fair value
|
|
|
|
U.S. dollars
In thousands
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
|
969
|
|
Trade
|
|
|
3,665
|
|
Inventory
|
|
|
4,110
|
|
Others
|
|
|
232
|
|
Non-current assets:
|
|
|
|
|
Property, plant and equipment
|
|
|
1,515
|
|
Intangible assets
|
|
|
15,126
|
|
Current liabilities:
|
|
|
|
|
Trade payables
|
|
|
(1,765
|
)
|
Other payables
|
|
|
(784
|
)
|
Non-current liabilities:
|
|
|
|
|
Other long-term payables
|
|
|
(706
|
)
|
Deferred taxes
|
|
|
(1,412
|
)
|
|
|
|
|
|
|
|
|
20,950
|
|
|
|
|
|
|
From the date it was included in the consolidated financial statements of the Company through December 31,
2017, the acquired operations have generated revenues of $10,891 thousand and net profit of $142 thousand (net of acquisition costs).
On April 5, 2017, the Company signed an agreement for the purchase of 60% of the Vietnamese company Western Flavors Fragrances Production
(WFF) for approx. VND 23.9 billion (approx. USD 1.1 million). The purchase agreement includes a mutual option for purchasing the remaining WFF shares beginning four years from closing the transaction at a price that is based on the
business performance of WFF during that period. The transaction was financed by own resources.
WFF was founded in 2003, has 44 employees
and engages in the development, production and marketing of flavors. WFF has a plant and laboratory in Ho Chi Minh City in southern Vietnam and a sales and marketing office in Hanoi, in the countrys northern region. Frutarom intends to build a
modern new flavors plant in Ho Chi Minh City, which will enable it to significantly expand its activity in the Vietnamese market and in the emerging markets of the region.
The cost of acquisition was allocated to tangible assets, intangible assets and liabilities that were acquired based on their fair value at the
time of the acquisition. The intangible assets that were recognized include: product formulas valued at VND 7,741 thousand ($342 thousand), customer relations at VND 15,180 thousand ($671 thousand) and goodwill at VND 10,445 thousand
($462 thousand). Product formulas and customer relations are amortized over economic useful lives of 20 years and 10 years, respectively.
F-36
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5BUSINESS COMBINATIONS
(continued):
Set forth below are the assets and liabilities of WFF at the date of acquisition:
|
|
|
|
|
|
|
Fair value
|
|
|
|
U.S. dollars
In thousands
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
|
114
|
|
Trade
|
|
|
351
|
|
Inventory
|
|
|
743
|
|
Others
|
|
|
140
|
|
Non-current assets:
|
|
|
|
|
Property, plant and equipment
|
|
|
411
|
|
Intangibles
|
|
|
1,475
|
|
Current liabilities:
|
|
|
|
|
Trade payables
|
|
|
(392
|
)
|
Other payables
|
|
|
(444
|
)
|
Non-current liabilities:
|
|
|
|
|
Other long-term payables
|
|
|
|
|
Deferred taxes
|
|
|
(223
|
)
|
Other long-term payables
|
|
|
(1,118
|
)
|
|
|
|
|
|
|
|
|
1,057
|
|
|
|
|
|
|
From the date it was included in the consolidated financial statements of the Company through December 31,
2017, the acquired operations have generated $726 thousand in revenue and $74 thousand in net income (net of acquisition costs).
On June 22, 2017, the Company signed an agreement for the purchase of 80% of the shares of the Brazilian company SDFLC Brasil
Indústria E Comércio Ltda. (SDFLC), in exchange for approx. BRL 98 million (approx. US$29.5 million). The purchase agreement includes debt and a contingent consideration mechanism that is based on SDFLC future business
performance, which, as of the date of acquisition, is estimated at approximately BRL 10 million. Additionally, the agreement includes a mutual option for acquiring the remaining shares starting two and a half years from closing date of the
transaction at a price based on SFCLCs business performance. The transaction was closed upon signing and was financed through bank debt.
SDFLC was founded in 2001 in the city of Sete Lagoas in the Brazilian state of Minas Gerais and is a provider of taste solutions for ice creams
and desserts in Brazil. SDFLC employs about 90 workers and serves around 2,250 customers in Brazil, including independent artisan ice cream makers, multinationals, food processing companies and leading dining chains.
The cost of acquisition was allocated to tangible assets, intangible assets and liabilities that were acquired based on their fair value at the
time of the acquisition. The intangible assets that were recognized include: product formulas valued at BRL 16,049 thousand ($4,812 thousand), customer relations at BRL 52,988 thousand ($15,884 thousand), goodwill at BRL
120,983 thousand ($36,271 thousand) and software at BRL 39 thousand ($14 thousand). Product formulas and customer relations are amortized over economic useful lives of 20 years and 10 years, respectively.
F-37
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5BUSINESS COMBINATIONS
(continued):
Set forth below are the assets and liabilities of SDFLC as at the date of acquisition:
|
|
|
|
|
|
|
Fair value
|
|
|
|
U.S. dollars
In thousands
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
|
38
|
|
Trade
|
|
|
2,154
|
|
Inventory
|
|
|
1,786
|
|
Others
|
|
|
264
|
|
Non-current assets:
|
|
|
|
|
Property, plant and equipment
|
|
|
2,613
|
|
Intangible assets
|
|
|
56,981
|
|
Current liabilities:
|
|
|
|
|
Bank credit and loans
|
|
|
(219
|
)
|
Trade payables
|
|
|
(717
|
)
|
Other account payables
|
|
|
(7,036
|
)
|
Non-current liabilities:
|
|
|
|
|
Deferred taxes
|
|
|
(4,329
|
)
|
Long-term other account payables
|
|
|
(20,198
|
)
|
Long-term loans
|
|
|
(1,908
|
)
|
|
|
|
|
|
|
|
|
29,429
|
|
|
|
|
|
|
From the date it was included in the consolidated financial statements of the Company through December 31,
2017, the acquired operations have generated $15,983 thousand in revenue and $3,844 thousand in net income (net of acquisition costs).
On August 14, 2017, the Company signed an agreement for the purchase of 100% of the shares of the UK Company Flavours and Essences (UK)
Ltd. (F&E) for approximately £15.6 million (approximately US$20.3 million) and a contingent consideration mechanism based on F&Es future business performance over the period of three years from the purchase date.
The transaction was closed upon signing and was financed through bank debt.
F&E, which was founded in 1998, is engaged in the
development, production and marketing of flavors and natural coloring. F&E operates a production site and R&D center in Blackburn, England, employs 41 people, and has a broad customer base in Europe, particularly in the UK and Ireland.
The cost of acquisition was allocated to tangible assets, intangible assets and liabilities that were acquired based on their fair value at the
time of the acquisition. The intangible assets that were recognized include: product formulas valued at GBP 2,516 thousand ($3,269 thousand), customer relations at GBP 4,265 thousand ($5,541 thousand) and goodwill at GBP
10,001 thousand ($12,993 thousand). Product formulas and customer relations are amortized over economic useful lives of 20 years and 10 years, respectively.
F-38
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5BUSINESS COMBINATIONS
(continued):
Set forth below are the assets and liabilities of F&E as at the date of acquisition:
|
|
|
|
|
|
|
Fair value
|
|
|
|
U.S. dollars
In thousands
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
|
2,529
|
|
Trade
|
|
|
3,879
|
|
Inventory
|
|
|
1,774
|
|
Non-current assets:
|
|
|
|
|
Property, plant and equipment
|
|
|
575
|
|
Intangible assets
|
|
|
21,803
|
|
Current liabilities:
|
|
|
|
|
Trade payables
|
|
|
(1,855
|
)
|
Other payables
|
|
|
(1,933
|
)
|
Non-current liabilities:
|
|
|
|
|
Long-term other payables
|
|
|
(5,010
|
)
|
Deferred taxes
|
|
|
(1,459
|
)
|
|
|
|
|
|
|
|
|
20,303
|
|
|
|
|
|
|
From the date it was included in the consolidated financial statements of the Company through December 31,
2017, the acquired operations have generated $8,634 thousand in revenue and $1,989 thousand in net income (net of acquisition costs).
|
g.
|
Acquisition of Muhlehof
|
On August 21, 2017, the Company signed an agreement for the purchase of 100% of the shares of the Swiss company Mühlehof Gewürze
AG (Muhlehof) for approx. CHF 6.7 million (approx. $7 million). The transaction was closed upon signing and financed through bank debt.
Muhlehof, which was founded in 1979, is engaged in the development, production and marketing of savory taste solutions (the non-sweet spectrum
of flavors), with emphasis on convenience foods and meats. Muhlehof, with 9 employees, has a site in Switzerland for development, manufacturing and marketing which is included among the acquired assets.
The cost of acquisition was allocated to tangible assets, intangible assets and liabilities that were acquired based on their fair value at the
time of the acquisition. The intangible assets that were recognized include: product formulas valued at CHF 567 thousand ($592 thousand), customer relations at CHF 593 thousands ($618 thousand), goodwill amounting to CHF 4,407 thousand
($4,597 thousand) and software at CHF 7 thousand ($8 thousand). Product formulas and customer relations are amortized over economic useful lives of 20 years and 10 years, respectively. The determination of the fair value of the assets and
liabilities is subject to a final appraisal for the allocation of the purchase prices to the fair value of the assets and liabilities; this appraisal has not yet been completed as of the date of approval of these financial statements.
F-39
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5BUSINESS COMBINATIONS
(continued):
Set forth below are the assets and liabilities of Muhlehof as at the date of acquisition:
|
|
|
|
|
|
|
Fair value
|
|
|
|
U.S. dollars
In thousands
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
|
463
|
|
Trade
|
|
|
257
|
|
Inventory
|
|
|
246
|
|
Other receivables
|
|
|
97
|
|
Non-current assets:
|
|
|
|
|
Property, plant and equipment
|
|
|
480
|
|
Intangible assets
|
|
|
5,815
|
|
Current liabilities:
|
|
|
|
|
Trade payables
|
|
|
(117
|
)
|
Other payables
|
|
|
(55
|
)
|
Non-current liabilities:
|
|
|
|
|
Deferred taxes
|
|
|
(211
|
)
|
|
|
|
|
|
|
|
|
6,975
|
|
|
|
|
|
|
From the date it was included in the consolidated financial statements of the Company through December 31,
2017, the acquired operations have generated $1,158 thousand in revenue and net income of $108 thousand (net of acquisition costs).
On September 6, 2017, Frutarom invested in and purchased shares of Turpaz Perfume and Flavor Extracts Ltd. (Turpaz) and BKF
Perfume Compounding Ltd. (a company that owns 80% of the share capital of Turpaz, BKF) and became owner of approx. 51% of share capital and voting rights in Turpaz. The consideration paid by Frutarom for the shares is approx. NIS
14.5 million (approx. US$4.1 million), and in addition, Frutarom injected an investment of approx. NIS 27 million (approx. US$7.4 million) into BKF. The purchase and investment agreement includes a mutual option for Frutarom to purchase
the remaining shares of Turpaz and BKF starting four years from the date of closing the transaction at a price that will be based on their future business performance in the eighth quarters preceding the notification to realize the option.
Considering the mutual option terms, the group has recognized 100% of the share capital of Turpaz and the related liability due to the capitalized value of the option. The transaction was financed through bank debt.
Turpaz is engaged mainly in the development, production and marketing of fragrance solutions. Turpaz, with 16 employees, has an R&D,
manufacturing and marketing site in Israel and recently opened a center for R&D, production, sales and marketing in New Jersey.
The
cost of acquisition was allocated to tangible assets, intangible assets and liabilities that were acquired based on their fair value at the time of the acquisition. The intangible assets that were recognized include: product formulas valued at NIS
6,834 thousand ($1,900 thousand), customer relations at NIS 11,297 thousand ($3,142 thousand) and goodwill at NIS 82,253 thousand ($22,873 thousand). The product formulas and customer relations are amortized over economic useful lives
of 20 years and 10 years, respectively. The determination of the fair value of the assets and liabilities is subject to a final appraisal for the allocation of the purchase prices to the fair value of the assets and
F-40
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5BUSINESS COMBINATIONS
(continued):
liabilities; this appraisal has not yet been completed as of the date of approval of these financial statements.
Set forth below are the assets and liabilities of Turpaz as at the date of acquisition:
|
|
|
|
|
|
|
Fair value
|
|
|
|
U.S. dollars
In thousands
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
|
8,713
|
|
Trade
|
|
|
2,057
|
|
Inventory
|
|
|
1,171
|
|
Other receivables
|
|
|
239
|
|
Non-current assets:
|
|
|
|
|
Property, plant and equipment
|
|
|
111
|
|
Intangible assets
|
|
|
27,915
|
|
Current liabilities:
|
|
|
|
|
Trade payables
|
|
|
(636
|
)
|
Other payables
|
|
|
(1,672
|
)
|
Non-current liabilities:
|
|
|
|
|
Bank loans
|
|
|
(1,770
|
)
|
Other long-term payables
|
|
|
(23,372
|
)
|
Deferred taxes
|
|
|
(1,215
|
)
|
|
|
|
|
|
|
|
|
11,541
|
|
|
|
|
|
|
From the date it was included in the consolidated financial statements of the Company through December 31,
2017, the acquired operations have generated revenues of $2,520 thousand and net income of $328 thousand (net of acquisition costs).
|
i.
|
Acquisition of Pollena
|
On December 19, 2017, Frutarom purchased 99.96% of the shares in the Polish company Fabryka Substancji Zapachowych
Pollena-Aroma Sp, z.o.o. (Pollena-Aroma) for approx. $8.4 million (approx. PLN 29.2 million). The transaction was closed upon signing and financed from own sources.
Pollena-Aroma, established in 1956, is engaged in the development, production and marketing of flavors, fragrances and specialty ingredients
for the aromatherapy and natural cosmetics industries. Pollena-Aroma operates a modern advanced production site near Warsaw, which includes an R&D center and labs, and state-of-the-art production with robotic equipment in the US, and which will
become a significant R&D, production, and sales and marketing center for Frutaroms European fragrances activity. Pollena-Aroma has 64 employees and a large customer base in Europe, particularly in Poland and Ukraine.
The cost of acquisition was allocated to tangible assets, intangible assets and liabilities that were acquired based on their fair value at the
time of the acquisition. The intangible assets that were recognized include: product formulas valued at PLN 2,356 thousand ($676 thousand), customer relations at PLN 30 thousand ($9 thousand), goodwill at PLN 7,810 thousand ($2,240
thousand) and software at PLN 62 thousand ($17 thousand).
F-41
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5BUSINESS COMBINATIONS
(continued):
Product formulas and customer relations are amortized over economic useful lives of 20 years
and 10 years, respectively. The determination of the fair value of the assets and liabilities is subject to a final appraisal for the allocation of the purchase prices to the fair value of the assets and liabilities; this appraisal has not yet been
completed as of the date of approval of these financial statements.
Set forth below are the assets and liabilities of Pollena as at the
date of acquisition:
|
|
|
|
|
|
|
Fair value
|
|
|
|
U.S. dollars
In thousands
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
|
374
|
|
Trade
|
|
|
1,240
|
|
Inventory
|
|
|
893
|
|
Other receivables
|
|
|
57
|
|
Non-current assets:
|
|
|
|
|
Property, plant and equipment
|
|
|
6,390
|
|
Intangible assets
|
|
|
2,942
|
|
Current liabilities:
|
|
|
|
|
Trade payables
|
|
|
(680
|
)
|
Other payables
|
|
|
(782
|
)
|
Non-current liabilities:
|
|
|
|
|
Other long-term payables
|
|
|
(1,928
|
)
|
Deferred taxes
|
|
|
(118
|
)
|
|
|
|
|
|
|
|
|
8,388
|
|
|
|
|
|
|
The results of Pollena will be consolidated as of December 31, 2017. Therefore, the results of this
company have no effect on income and loss for 2017.
Acquisitions carried out in 2016:
|
j.
|
Acquisition of control in Amco SP.Z.O.O
|
On January 11, 2016, Frutarom completed acquisition of 75% of share capital of the Polish company Amco Sp. z.o.o, (hereafter
Amco) in consideration of $22.4 million (PLN 88.5 million). The purchase agreement includes a mutual option for acquiring the remaining shares starting two and a half years from closing date of the transaction at a price that will be
based on Amcos business performance. Considering the mutual terms of the option, the Company recognized the full implicit liability of the option realization.
On January 28, 2016, Frutarom completed the acquisition of 100% of the shares of Sagema GmbH of Austria and Wiberg GmbH of Germany
(including Wibergs 50% ownership stake in a Canadian subsidiary (Wiberg Corporation) and 51% ownership stake in a Turkish subsidiary (WIBERG BAHARAT SANAYİ VE TİCARET ANONİM SİRKETİ which was subsequently fully
acquired) (hereafter collectively: Wiberg) in consideration of approx. $129.9 million (119.1 million). The purchase was fully funded using bank funding.
F-42
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5BUSINESS COMBINATIONS
(continued):
|
l.
|
Acquisition of Grow Company Inc.
|
On January 11, 2016, the Company signed an agreement for the acquisition of 100% of the shares of the US-based company Grow Company Inc.
(hereafter Grow) in consideration of $20 million. The transaction was closed on the date of signing the agreement and was financed using bank debt. The purchase agreement included a contingent consideration mechanism based on the
Companys business performance in 2016 and completed in late first quarter of 2017 in the amount of $10,800 thousand.
|
m.
|
Acquisition of Extrakt Chemie
|
On May 2, 2016, the Company signed an agreement for the acquisition of 100% of the rights and the general partner of the German
partnership Extrakt Chemie Dr. Bruno Stellmach GmbH &Co. KG (hereafterExtrakt Chemie) as well as the property on which Extrakt Chemies plant is situated in consideration for approx. $6.3 million in cash (approx.
5.4 million) plus the assumption of debt (net) at approx. $1.4 million (approx. 1.2 million). The purchase agreement includes a mechanism for future consideration conditional on the business performance of Extrakt Chemie that will be
paid in 2018.
|
n.
|
Acquisition of Redbrook Ingredient Services Limited
|
On August 2, 2016, the Company signed, through a subsidiary, an agreement for the purchase of 100% of shares in the Irish company Redbrook
Ingredient Services Limited (Redbrook) in exchange for approximately USD 44.8 million (40 million). The purchase agreement includes a mechanism for additional consideration based on Redbrooks future business
performance.
|
o.
|
Acquisition of Nardi Aromas
|
On October 11, 2016, the Company signed, through a subsidiary, an agreement for the purchase of 100% of shares in the Brazilian company
Nardi Aromas Ltda. (Nardi) in exchange for approximately USD 1.6 million (BRL 5.1 million).
On November 9, 2016, Frutarom signed, through a subsidiary, an agreement to acquire 75% of share capital of the Mexican company Ingenieria
Alimentaria, S.A. De C.V. (Piasa), as well as real estate in Monterrey, Mexico, where its central manufacturing site and headquarters are located, in exchange for a cash consideration (including debt) of $15.1 million, and deferred
consideration of $2.3 million. The purchase agreement includes a mechanism for additional consideration based on business performance in 2016. Additionally, the agreement included a mutual option to acquire the remaining shares beginning from 5
years after closing at a price that is based on business performance of the Company. Considering the mutual terms of the option, the Company recognized the full implicit liability of option realization.
|
q.
|
Had the acquisitions carried out in 2017 and 2016 been completed on January 1, 2016, based on the
unaudited information provided by owners of acquirees based on the pre-acquisition accounting activity, the revenue of the Group for the year ended December 31, 2016 would have been $1,292,086 thousand, and net income for that year would have
been $137,736 thousand. Based on the above, the revenue of the Group for the year ended December 31, 2017 would have been $1,401,960 thousand, and net income for that year would have been $158,396 thousand.
|
F-43
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5BUSINESS COMBINATIONS
(continued):
The above results include interest expenses on loans to finance the acquisition that would
have been registered in that period, depreciation and amortization that may have been recognized in that period for amortization of intangible assets and one-off expenses recognized on acquisition date. The aforesaid calculation does not take into
account synergies that would result from merger of the acquisitions with activity of the company.
NOTE 6SEGMENT REPORTING
The core activity of the Group is organized to support management in implementing a worldwide strategy in two major operating activities:
Flavors and Fine Ingredients. Another operating activity is Trade and Marketing (each operation is considered a separate reportable segment (Note 2d). Results of operating segments are measured based on operating income.
Frutaroms Flavors Activity develops, produces, markets and sells high-quality, value added sweet and savory flavors used mainly by
manufacturers of food and beverages and other consumer products including flavors and Food Systems products (products combining fruits, vegetables and/or other natural ingredients, including sweet and non-sweet flavors). Frutaroms Specialty
Fine Ingredients Activity develops, produces, markets and sells natural flavor extracts, natural functional food ingredients, natural pharma/nutraceutical extracts, natural algae based biotechnical products, aroma chemicals, specialty essential
oils, unique citrus products, natural gums and stabilizers.
The Specialty Fine Ingredients products are sold primarily to the food and
beverage, flavor and fragrance, pharmaceutical/nutraceutical, cosmetics and personal care industries.
The Trade and Marketing activity is
not considered a core activity, and focuses on trade and marketing of raw materials that are produced by third parties, as part of providing a complete range of solutions and services to customers.
These operations are the basis on which the Group reports its primary segment information.
Segment as data provided to the chief operating decision-maker in respect of the reported segments are as follows:
December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flavors
operations
|
|
|
Fine
ingredients
operations
|
|
|
Trade and
marketing
operations
|
|
|
Elimination
|
|
|
Total
Consolidated
|
|
Income statement information:
|
|
U.S. dollars in thousands
|
|
Salesnet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers
|
|
|
1,025,359
|
|
|
|
246,075
|
|
|
|
90,962
|
|
|
|
|
|
|
|
1,362,396
|
|
Intersegment
|
|
|
|
|
|
|
14,047
|
|
|
|
|
|
|
|
(14,047
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales and other operating income
|
|
|
1,025,359
|
|
|
|
260,122
|
|
|
|
90,962
|
|
|
|
(14,047
|
)
|
|
|
1,362,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment results
|
|
|
177,680
|
|
|
|
31,638
|
|
|
|
1,664
|
|
|
|
(16
|
)
|
|
|
210,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial expensesnet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,606
|
|
Taxes on income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-44
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6SEGMENT REPORTING
(continued):
December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flavors
operations
|
|
|
Fine
ingredients
operations
|
|
|
Trade and
marketing
operations
|
|
|
Elimination
|
|
|
Total
Consolidated
|
|
Income statement information:
|
|
U.S. dollars in thousands
|
|
Salesnet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers
|
|
|
846,517
|
|
|
|
221,030
|
|
|
|
79,494
|
|
|
|
|
|
|
|
1,147,041
|
|
Intersegment
|
|
|
|
|
|
|
6,830
|
|
|
|
|
|
|
|
(6,830
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales and other operating income
|
|
|
846,517
|
|
|
|
227,860
|
|
|
|
79,494
|
|
|
|
(6,830
|
)
|
|
|
1,147,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment results
|
|
|
125,825
|
|
|
|
21,549
|
|
|
|
1,938
|
|
|
|
(56
|
)
|
|
|
149,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial expensesnet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,841
|
|
Taxes on income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flavors
operations
|
|
|
Fine
ingredients
operations
|
|
|
Trade and
marketing
operations
|
|
|
Elimination
|
|
|
Total
Consolidated
|
|
Income statement information:
|
|
U.S. dollars in thousands
|
|
Salesnet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers
|
|
|
607,534
|
|
|
|
180,918
|
|
|
|
84,344
|
|
|
|
|
|
|
|
872,796
|
|
Intersegment
|
|
|
|
|
|
|
4,026
|
|
|
|
|
|
|
|
(4,026
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales and other operating income
|
|
|
607,534
|
|
|
|
184,944
|
|
|
|
84,344
|
|
|
|
(4,026
|
)
|
|
|
872,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment results
|
|
|
108,751
|
|
|
|
18,900
|
|
|
|
2,870
|
|
|
|
(267
|
)
|
|
|
130,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial expensesnet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,197
|
|
Taxes on income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Additional information:
|
1) Geographical Segment Information
As of December 31, 2017, Frutarom operated 72 production sites, 90 research and development laboratories, and 109 sales offices in Europe,
North America, Latin America, Israel, Asia, Africa and New Zealand, and markets and sells over 70,000 products to more than 30,000 customers in more than 150 territories.
F-45
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6SEGMENT REPORTING
(continued):
2) Sales by Destination Based on End Customer Location
The following is information on the distribution of the Companys sales by market:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
U.S. dollars in thousands
|
|
Emerging Market*
|
|
|
585,619
|
|
|
|
470,247
|
|
|
|
384,804
|
|
West Europe**
|
|
|
494,149
|
|
|
|
424,292
|
|
|
|
281,745
|
|
USA and North America***
|
|
|
195,280
|
|
|
|
173,216
|
|
|
|
136,633
|
|
Other
|
|
|
87,348
|
|
|
|
79,286
|
|
|
|
69,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated sales
|
|
|
1,362,396
|
|
|
|
1,147,041
|
|
|
|
872,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Sales in Russia amounted to $160,363 thousand, $150,370 thousand and $142,885 thousand in 2017, 2016 and 2015,
respectively.
|
|
**
|
Sales in Germany amounted to $134,964 thousand, $121,261 thousand and $66,018 thousand in 2017, 2016 and 2015,
respectively.
|
|
***
|
Sales in the USA amounted to $149,579 thousand, $132,649 thousand and $111,767 thousand in 2017, 2016 and 2015,
respectively.
|
NOTE 7PROPERTY, PLANT AND EQUIPMENT
|
a.
|
Composition of assets, grouped by major classifications and changes therein in 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
Accumulated depreciation
|
|
|
Depreciated
balance
|
|
|
|
Balance at
beginning
of year
|
|
|
Additions
during
the year
|
|
|
Retirements
during the
year
|
|
|
Other*
|
|
|
Balance
at end
of year
|
|
|
Balance
at
beginning
of year
|
|
|
Additions
during
the year
|
|
|
Retirements
during the
year
|
|
|
Other*
|
|
|
Balance
at end
of year
|
|
|
December 31
2017
|
|
|
|
U.S. dollars in thousands
|
|
|
U.S. dollars in thousands
|
|
Land and buildings
|
|
|
223,850
|
|
|
|
9,106
|
|
|
|
(863
|
)
|
|
|
32,869
|
|
|
|
264,962
|
|
|
|
71,686
|
|
|
|
3,583
|
|
|
|
(59
|
)
|
|
|
8,471
|
|
|
|
83,681
|
|
|
|
181,281
|
|
Machinery and equipment
|
|
|
265,112
|
|
|
|
18,867
|
|
|
|
(10,949
|
)
|
|
|
31,443
|
|
|
|
304,473
|
|
|
|
183,469
|
|
|
|
14,078
|
|
|
|
(10,248
|
)
|
|
|
22,064
|
|
|
|
209,363
|
|
|
|
95,110
|
|
Vehicles and lifting equipment
|
|
|
10,716
|
|
|
|
1,756
|
|
|
|
(2,445
|
)
|
|
|
1,309
|
|
|
|
11,336
|
|
|
|
6,713
|
|
|
|
1,488
|
|
|
|
(2,086
|
)
|
|
|
665
|
|
|
|
6,780
|
|
|
|
4,556
|
|
Furniture and office equipment (including computers)
|
|
|
48,595
|
|
|
|
3,498
|
|
|
|
(1,572
|
)
|
|
|
3,895
|
|
|
|
54,416
|
|
|
|
24,236
|
|
|
|
2,568
|
|
|
|
(1,290
|
)
|
|
|
3,772
|
|
|
|
29,286
|
|
|
|
25,130
|
|
Leasehold improvements
|
|
|
17,479
|
|
|
|
1,167
|
|
|
|
(796
|
)
|
|
|
1,206
|
|
|
|
19,056
|
|
|
|
10,828
|
|
|
|
1,404
|
|
|
|
(695
|
)
|
|
|
720
|
|
|
|
12,257
|
|
|
|
6,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
565,752
|
|
|
|
34,394
|
|
|
|
(16,625
|
)
|
|
|
70,722
|
|
|
|
654,243
|
|
|
|
296,932
|
|
|
|
23,121
|
|
|
|
(14,378
|
)
|
|
|
35,692
|
|
|
|
341,367
|
|
|
|
312,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-46
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7PROPERTY, PLANT AND EQUIPMENT
(continued):
|
a.
|
Composition of assets, grouped by major classifications and changes therein in 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
Accumulated depreciation
|
|
|
Depreciated
balance
|
|
|
|
Balance at
Beginning
of year
|
|
|
Additions
During
the year
|
|
|
Retirements
during the
year
|
|
|
Other*
|
|
|
Balance
at end
of year
|
|
|
Balance
at
beginning
of year
|
|
|
Additions
during
the year
|
|
|
Retirements
during the
year
|
|
|
Other*
|
|
|
Balance
at end
of year
|
|
|
December 31
2016
|
|
|
|
U.S. dollars in thousands
|
|
|
U.S. dollars in thousands
|
|
Land and buildings
|
|
|
188,582
|
|
|
|
6,440
|
|
|
|
(1,328
|
)
|
|
|
30,156
|
|
|
|
223,850
|
|
|
|
55,705
|
|
|
|
6,804
|
|
|
|
(38
|
)
|
|
|
9,215
|
|
|
|
71,686
|
|
|
|
152,164
|
|
Machinery and equipment
|
|
|
240,587
|
|
|
|
14,502
|
|
|
|
(21,801
|
)
|
|
|
31,824
|
|
|
|
265,112
|
|
|
|
171,428
|
|
|
|
12,375
|
|
|
|
(19,318
|
)
|
|
|
18,984
|
|
|
|
183,469
|
|
|
|
81,643
|
|
Vehicles and lifting equipment
|
|
|
8,963
|
|
|
|
2,016
|
|
|
|
(1,628
|
)
|
|
|
1,365
|
|
|
|
10,716
|
|
|
|
5,689
|
|
|
|
1,326
|
|
|
|
(1,197
|
)
|
|
|
895
|
|
|
|
6,713
|
|
|
|
4,003
|
|
Furniture and office equipment (including computers)
|
|
|
43,694
|
|
|
|
3,503
|
|
|
|
(5,538
|
)
|
|
|
6,936
|
|
|
|
48,595
|
|
|
|
24,059
|
|
|
|
385
|
|
|
|
(5,342
|
)
|
|
|
5,134
|
|
|
|
24,236
|
|
|
|
24,359
|
|
Leasehold improvements
|
|
|
19,033
|
|
|
|
2,032
|
|
|
|
(5,880
|
)
|
|
|
2,294
|
|
|
|
17,479
|
|
|
|
11,192
|
|
|
|
1,366
|
|
|
|
(3,289
|
)
|
|
|
1,559
|
|
|
|
10,828
|
|
|
|
6,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,859
|
|
|
|
28,493
|
|
|
|
(36,175
|
)
|
|
|
72,575
|
|
|
|
565,752
|
|
|
|
268,073
|
|
|
|
22,256
|
|
|
|
(29,184
|
)
|
|
|
35,787
|
|
|
|
296,932
|
|
|
|
268,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Arising from acquisition of subsidiaries and operations and from translation of foreign-currency financial
statements of subsidiaries.
|
|
1)
|
Frutarom Ltd. has a leasehold right in a land property located in the Akko Industrial Zone and the Haifa Bay.
Net discounted lease payments as at December 31, 2017, in respect of the said land properties is $981 thousand (2016$1,013 thousand). The lease period is 49 years ending in 2032 and 2042, respectively. Frutarom Ltd. has a right to extend
the lease for an additional 49-year period.
|
|
2)
|
A subsidiary in China has Land Use Rights to land properties in China. The rights are for a period
of 50 years ending in 2046 and 2052. Net discounted lease payments as at December 31, 2017 in respect of the said land properties is approximately $135 thousand (2016$143 thousand) and $1,062 (2016$1,041), respectively.
|
|
3)
|
In 2015, a subsidiary in China acquired Land Use Rights. The rights are for a period of 50 years.
Net discounted lease payments as at December 31, 2017, in respect of the land property is $1,211 thousand.
|
F-47
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8INTANGIBLE ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original amount
|
|
|
Amortized balance
|
|
|
|
December 31
|
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Know-how and product formulas
|
|
|
161,999
|
|
|
|
136,903
|
|
|
|
119,324
|
|
|
|
104,509
|
|
Goodwill
|
|
|
593,168
|
|
|
|
456,944
|
|
|
|
589,250
|
|
|
|
454,687
|
|
Customer relations
|
|
|
177,926
|
|
|
|
137,010
|
|
|
|
116,628
|
|
|
|
94,688
|
|
Trademarks
|
|
|
309
|
|
|
|
500
|
|
|
|
18
|
|
|
|
58
|
|
Computer software
|
|
|
30,607
|
|
|
|
31,305
|
|
|
|
4,006
|
|
|
|
3,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
964,009
|
|
|
|
762,662
|
|
|
|
829,226
|
|
|
|
657,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Composition of Intangible Assets, Grouped by Major Classifications and Changes Therein is as Follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computer
software
|
|
|
Know-
how and
product
formulas
|
|
|
Goodwill*
|
|
|
Customer
relations
|
|
|
Trademarks
|
|
|
Total
|
|
|
|
U.S. dollars in thousands
|
|
Balance as of January 1, 2016net
|
|
|
4,294
|
|
|
|
73,112
|
|
|
|
335,538
|
|
|
|
60,707
|
|
|
|
156
|
|
|
|
473,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in the year ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
950
|
|
|
|
297
|
|
|
|
|
|
|
|
|
|
|
|
97
|
|
|
|
1,344
|
|
Retirements during the year
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
(105
|
)
|
Additions due to business combinations
|
|
|
588
|
|
|
|
39,382
|
|
|
|
129,341
|
|
|
|
48,252
|
|
|
|
|
|
|
|
217,563
|
|
Foreign exchange gains and losses
|
|
|
(35
|
)
|
|
|
(1,856
|
)
|
|
|
(11,034
|
)
|
|
|
(2,139
|
)
|
|
|
(94
|
)
|
|
|
(15,158
|
)
|
Changes in the excess of cost of acquisition
|
|
|
347
|
|
|
|
|
|
|
|
842
|
|
|
|
|
|
|
|
|
|
|
|
1,189
|
|
Annual amortization charge (Note 2f)
|
|
|
(2,205
|
)
|
|
|
(6,426
|
)
|
|
|
|
|
|
|
(12,132
|
)
|
|
|
(96
|
)
|
|
|
(20,859
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing net book amount
|
|
|
3,839
|
|
|
|
104,509
|
|
|
|
454,687
|
|
|
|
94,688
|
|
|
|
58
|
|
|
|
657,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in the year ended December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
1,669
|
|
|
|
1,163
|
|
|
|
|
|
|
|
|
|
|
|
58
|
|
|
|
2,890
|
|
Retirements during the year
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(141
|
)
|
Additions due to business combinations
|
|
|
47
|
|
|
|
14,549
|
|
|
|
95,295
|
|
|
|
30,269
|
|
|
|
17
|
|
|
|
140,177
|
|
Foreign exchange gains and losses
|
|
|
465
|
|
|
|
6,174
|
|
|
|
43,111
|
|
|
|
6,585
|
|
|
|
(6
|
)
|
|
|
56,329
|
|
Changes in the excess of cost of acquisition
|
|
|
(499
|
)
|
|
|
262
|
|
|
|
(3,843
|
)
|
|
|
(54
|
)
|
|
|
|
|
|
|
(4,134
|
)
|
Annual amortization charge (Note 2f)
|
|
|
(1,374
|
)
|
|
|
(7,333
|
)
|
|
|
|
|
|
|
(14,860
|
)
|
|
|
(109
|
)
|
|
|
(23,676
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing net book amount
|
|
|
4,006
|
|
|
|
119,324
|
|
|
|
589,250
|
|
|
|
116,628
|
|
|
|
18
|
|
|
|
829,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-48
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8INTANGIBLE ASSETS
(continued):
Test for impairment of goodwill
The goodwill recorded in the Groups books of accounts arises from acquisitions of subsidiaries and operations carried out by the Group
over the years. Goodwill is allocated to the cash-generating units of the Group in accordance with the unit and the business segment from which it arises.
Set forth below is a summary of goodwill allocation between the various cash-generating units:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
|
U.S. dollars in
thousands
|
|
Cash-generating unit 1
|
|
|
331,870
|
|
|
|
242,383
|
|
Cash-generating unit 2
|
|
|
156,677
|
|
|
|
115,628
|
|
Cash-generating unit 3
|
|
|
58,325
|
|
|
|
56,276
|
|
Cash-generating unit 4
|
|
|
42,378
|
|
|
|
40,400
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
589,250
|
|
|
|
454,687
|
|
|
|
|
|
|
|
|
|
|
The Company has 6 cash-generating-units, 4 of which have goodwill. The Companys management continuously
reviews the structure of its cash-generating units and adjust it to allow development of its business.
The changes in goodwill between
the years are due to acquisitions of new companies/operations, and changes in the exchange rate of the currencies of the foreign operations compared to the US dollar, as explained in Notes 5 and 2c-4.
The recoverable amount of a cash-generating unit is determined based on value-in-use calculations. These calculations use pre-tax cash flow
projections based on past results of the unit, its budget for the following year and the projection for future years, cash flows from the fifth year are extrapolated using a grow rate of 2.5%-3%, according to the activity area of the cash generating
unit, which does not exceed the long-term growth rate for the food business and the relevant areas, in which the Group operates.
The
average discount rate taken into account in the calculation is 9.1% before taxes.
Group management determines profit margins based on
past performance and its expectations for development of each cash-generating units.
The recoverable amounts of cash-generating unit 1, 2
and 3 were calculated and examined by an external assessor, whereas the recoverable amount of cash-generating unit 4 was calculated and examined by Group management.
The results of the above analysis show that the value of goodwill of each of the said cash-generating units has not been impaired, both
according to the basic calculations and calculations performed for the purpose of sensitivity test.
F-49
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 9BORROWINGS
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
|
U.S. dollars
in thousands
|
|
Non-current borrowings
|
|
|
262,151
|
|
|
|
299,576
|
|
|
|
|
|
|
|
|
|
|
Current borrowings:
|
|
|
|
|
|
|
|
|
Current maturities of long-term loans
|
|
|
213,469
|
|
|
|
174,534
|
|
Bank borrowings
|
|
|
158,666
|
|
|
|
59,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
372,135
|
|
|
|
234,204
|
|
|
|
|
|
|
|
|
|
|
Total borrowings
|
|
|
634,286
|
|
|
|
533,780
|
|
|
|
|
|
|
|
|
|
|
Bank borrowings as of December 31, 2017 mature until 2024 and bear average interest of 1.47% according to
the loan terms and LIBOR rates as of December 31, 2017.
The exposure of the Groups cash flows to interest rate changes is
dependent at the rate of LIBOR-Euro, LIBOR-Dollar, LIBOR-Swiss franc and LIBOR-Pound Sterling and it is updated on a quarterly basis.
Due to the above, the fair value of current and non-current borrowings is equal to their carrying amount, as the impact of discounting is not
significant. The fair values are based on cash flows discounted by the borrowings discount rate.
The carrying amounts of the
Groups borrowings are denominated in the following currencies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average interest
rates*
|
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
|
U.S. dollars in
thousands
|
|
Pound sterling
|
|
|
1.75
|
%
|
|
|
99,784
|
|
|
|
56,481
|
|
Dollars
|
|
|
2.71
|
%
|
|
|
170,008
|
|
|
|
121,087
|
|
Euro
|
|
|
1.04
|
%
|
|
|
263,789
|
|
|
|
282,647
|
|
Swiss Franc
|
|
|
0.54
|
%
|
|
|
96,088
|
|
|
|
71,357
|
|
Other currencies
|
|
|
6.50
|
%
|
|
|
4,617
|
|
|
|
2,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
634,286
|
|
|
|
533,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Interest rates as of December 31, 2017.
|
Long-term liabilities (net of current maturities) mature in the following years after the balance sheet date:
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
U.S. dollars in
thousands
|
|
Second year
|
|
|
114,709
|
|
|
|
171,420
|
|
Third year
|
|
|
94,232
|
|
|
|
54,946
|
|
Fourth year
|
|
|
23,168
|
|
|
|
64,498
|
|
Fifth year
|
|
|
30,042
|
|
|
|
8,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
262,151
|
|
|
|
299,576
|
|
|
|
|
|
|
|
|
|
|
F-50
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 9BORROWINGS
(continued):
The Group has several loans, in respect of which it has undertaken to meet certain financial
covenants (see note 14). As of December 31, 2017, the Group is in compliance with all required financial covenants.
NOTE 10RETIREMENT
BENEFIT OBLIGATION:
|
a
.
|
Labor laws and agreements in Israel and abroad require the Company and part of its subsidiaries to pay
severance pay and/or pensions to employees dismissed or retiring in certain other circumstances. Group companies liability is covered mainly by regular contributions to defined contribution plans. The amounts funded as above are not reflected
in the balance sheet since they are not under the control and management of the companies.
|
|
b.
|
Under the agreement with its employees, the U.S. subsidiary had a defined benefit plan. As part of the
collective agreement signed between the Companys subsidiary and the labor union on October 13, 2000, the U.S. subsidiary suspended the said plan and joined, as from that date, a comprehensive pension plan of the labor union, which is
a defined contribution plan.
|
The U.S. subsidiary will continue funding its existing liabilities under the suspended
pension plan. The amount of retirement benefit obligation and amounts funded, as presented in the consolidated accounts, reflect, inter alia, the U.S. subsidiarys liability in respect of the suspended plan.
|
c.
|
The Swiss and German subsidiaries have a liability for payment of pension to employees in Switzerland and
Germany under a defined benefit plan. The said liabilities have been transferred to these subsidiaries as part of the acquisition of subsidiaries in 2003 and 2007, respectively. The subsidiaries make contributions to pension plans in respect of
these liabilities. The amount of the liability for pension (net) in the balance sheet reflects the difference between the liability for pension payments and the assets of the pension fund.
|
|
d.
|
The Companys severance pay liability in respect of Israeli employees who are covered for that purpose
under Section 14 of the Severance Pay Law is covered by regular contributions to defined contribution plans. The amounts funded as above are not reflected in the consolidated statement of financial position.
|
|
e.
|
Amounts charged to the income statement in respect of defined benefit plan in 2017, 2016 and 2015 are $2,351
thousand, $2,493 thousand and $2,468 thousand, respectively.
|
F-51
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10RETIREMENT BENEFIT OBLIGATION
(continued):
Changes in net liability (asset):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value
of obligation
|
|
|
Fair value of
plan assets
|
|
|
Net liability
(asset)
|
|
|
|
US dollars in thousands
|
|
Balance as of January 1, 2017
|
|
|
63,739
|
|
|
|
(28,699
|
)
|
|
|
35,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current service cost
|
|
|
2,351
|
|
|
|
|
|
|
|
2,351
|
|
Interest expenses (income)
|
|
|
733
|
|
|
|
(295
|
)
|
|
|
438
|
|
Past service cost
|
|
|
(1,837
|
)
|
|
|
|
|
|
|
(1,837
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,247
|
|
|
|
(295
|
)
|
|
|
952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remeasurements of the net liability (asset):
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on plan assets, excluding amounts included in interest expense (income)
|
|
|
|
|
|
|
(1,655
|
)
|
|
|
(1,655
|
)
|
Loss (gain) from change in demographic assumptions
|
|
|
8
|
|
|
|
|
|
|
|
8
|
|
Loss (gain) from change in financial assumptions
|
|
|
(787
|
)
|
|
|
|
|
|
|
(787
|
)
|
Loss (gain) from experience adjustments
|
|
|
(1,012
|
)
|
|
|
|
|
|
|
(1,012
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,791
|
)
|
|
|
(1,655
|
)
|
|
|
(3,446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial statements translation gains and losses
|
|
|
4,374
|
|
|
|
(1,345
|
)
|
|
|
3,029
|
|
Acquisition of subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
Employers contributions
|
|
|
745
|
|
|
|
(1,706
|
)
|
|
|
(961
|
)
|
Benefit payments
|
|
|
(3,136
|
)
|
|
|
2,528
|
|
|
|
(608
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2017
|
|
|
65,178
|
|
|
|
(31,172
|
)
|
|
|
34,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-52
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10RETIREMENT BENEFIT OBLIGATION
(continued):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value
of obligation
|
|
|
Fair value of
plan assets
|
|
|
Net liability
(asset)
|
|
|
|
US dollars in thousands
|
|
Balance as of January 1, 2016
|
|
|
61,499
|
|
|
|
(29,279
|
)
|
|
|
32,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current service cost
|
|
|
2,493
|
|
|
|
|
|
|
|
2,493
|
|
Interest expenses (income)
|
|
|
788
|
|
|
|
(303
|
)
|
|
|
485
|
|
Other
|
|
|
63
|
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,344
|
|
|
|
(303
|
)
|
|
|
3,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remeasurements of the net liability (asset):
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on plan assets, excluding amounts included in interest expense (income)
|
|
|
|
|
|
|
(358
|
)
|
|
|
(358
|
)
|
Loss (gain) from change in demographic assumptions
|
|
|
(980
|
)
|
|
|
|
|
|
|
(980
|
)
|
Loss (gain) from change in financial assumptions
|
|
|
1,179
|
|
|
|
|
|
|
|
1,179
|
|
Loss (gain) from experience adjustments
|
|
|
(1,200
|
)
|
|
|
|
|
|
|
(1,200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,001
|
)
|
|
|
(358
|
)
|
|
|
(1,359
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial statements translation gains and losses
|
|
|
(1,757
|
)
|
|
|
709
|
|
|
|
(1,048
|
)
|
Acquisition of subsidiaries
|
|
|
3,855
|
|
|
|
|
|
|
|
3,855
|
|
Employers contributions
|
|
|
835
|
|
|
|
(2,128
|
)
|
|
|
(1,293
|
)
|
Benefit payments
|
|
|
(3,036
|
)
|
|
|
2,661
|
|
|
|
(375
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
|
|
63,739
|
|
|
|
(28,698
|
)
|
|
|
35,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following amounts were recognized in the statement of financial position in relation to post-employment
defined benefit plans:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
|
U.S. dollars in
thousands
|
|
Present value of obligations arising from fully or partially funded plans
|
|
|
65,178
|
|
|
|
63,739
|
|
Fair value of plan assets
|
|
|
(31,172
|
)
|
|
|
(28,698
|
)
|
|
|
|
|
|
|
|
|
|
Balance of liability recognized in the statement of financial position
|
|
|
34,006
|
|
|
|
35,041
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the statement of financial position for post-employment defined benefit plans are
predominantly non-current and are reported as non-current liabilities.
F-53
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10RETIREMENT BENEFIT OBLIGATION
(continued):
The Group operates defined benefit schemes in several countries for which the actuarial
assumptions vary based on local economic and social conditions. The assumptions used in the actuarial valuations of the defined benefit plans, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.A.
|
|
|
Germany and Austria
|
|
|
Switzerland
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Discount rates
|
|
|
3.55
|
%
|
|
|
3.55
|
%
|
|
|
3.55
|
%
|
|
|
1.75
|
%
|
|
|
1.67
|
%
|
|
|
2.3
|
%
|
|
|
0.8
|
%
|
|
|
0.7
|
%
|
|
|
0.75
|
%
|
Projected salary growth rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.5
|
%
|
|
|
1.17
|
%
|
|
|
1.17
|
%
|
|
|
1.5
|
%
|
|
|
1.5
|
%
|
|
|
1.5
|
%
|
The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions, assuming
all other assumptions remained unchanged, and which were reasonably possible at the end of the reported period is:
|
|
|
|
|
|
|
Increase (decrease)
in defined benefit
obligation
|
|
|
|
December 31, 2017
|
|
|
|
US dollars in
thousands
|
|
Discount rate:
|
|
|
|
|
1% increase
|
|
|
(9,259
|
)
|
1% decrease
|
|
|
12,042
|
|
Salary growth rate:
|
|
|
|
|
1% increase
|
|
|
2,236
|
|
1% decrease
|
|
|
(1,813
|
)
|
The assumptions concerning future mortality are based on public mortality tables.
Plan assets
The plan
assets are composed as follows:
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
US dollars in
thousands
|
|
Government bonds
|
|
|
2,425
|
|
|
|
2,419
|
|
Real estate held abroad
|
|
|
3,122
|
|
|
|
2,847
|
|
Qualifying insurance policies
|
|
|
963
|
|
|
|
960
|
|
Cash and cash equivalents
|
|
|
21,941
|
|
|
|
19,994
|
|
Other
|
|
|
2,721
|
|
|
|
2,478
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
31,172
|
|
|
|
28,698
|
|
|
|
|
|
|
|
|
|
|
NOTE 11COMMITMENTS AND CONTINGENT LIABILITIES
Some of the premises, warehouses, sites and vehicles in the U.K., Germany, Belgium and Israel in the possession of the Group are rented under
various operating lease agreements. The lease agreements for the premises will expire on various dates between 2018 and 2022.
F-54
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 11COMMITMENTS AND CONTINGENT LIABILITIES
(continued):
Minimum lease commitments of the Group under the above leases, at rates in effect on
December 31, 2017, are as follows:
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|
|
|
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$ in thousands
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Year ending December 31:
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|
|
|
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2018
|
|
|
11,165
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|
2019
|
|
|
8,885
|
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2020
|
|
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7,381
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2021
|
|
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6,816
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2022
|
|
|
7,845
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2023
|
|
|
4,436
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|
|
|
|
|
|
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46,528
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|
|
|
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Rental expenses totaled $11,251 thousand, $10,148 thousand and $8,657 thousand, in the years ended
December 31, 2017, 2016 and 2015, respectively.
Frutarom Ltd. is committed to pay royalties to the Government of Israel on proceeds from sales of products that were developed with partially
funded by Israeli government grants. Under the terms of those grants, the Company is required to pay royalties of 3%-5% on sales of products developed from a project so funded, up to 100% of the amount of the grant received by Frutarom Ltd., linked
to the dollar (as from January 1, 1999 with the addition of annual interest at LIBOR).
The maximum royalty payable by
Frutarom Ltd. at December 31, 2017 is $2,044 thousand. The Company has not recorded liability for these royalties due to low likelihood of payment.
In 2017 and 2016, Frutarom Ltd. Has not received Chief Scientist grants.
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b.
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Contingent Liabilities:
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The subsidiaries of the Group are not a party to legal procedures in the ordinary course of business, which in the opinion of Groups
management, may have material impact on the Groups financial position.
NOTE 12EQUITY:
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1)
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Composed of ordinary shares of NIS 1 par value, as follows:
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Number of shares in thousands and
the amount thereof, denominated
in NIS
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|
|
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December 31
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2017
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|
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2016
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Authorized
|
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100,000
|
|
|
|
100,000
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|
|
|
|
|
|
|
|
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Issued and paid up
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59,655
|
|
|
|
59,335
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|
|
|
|
|
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F-55
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 12EQUITY
(continued):
The Company listed shares are quoted on TASE at NIS 320.5 ($92.44) per share as of
December 31, 2017. The global depository receipts (GDRs) representing the Companys shares are listed on LSE.
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2)
|
Ordinary Company shares of NIS 1 par value, are held by the Company and included within the issued and paid up
share capital, which constitute 0.2% (142,633 shares) and 0.4% (235,907 shares) of the balance of ordinary issued and paid up shares of this type as of December 31, 2017 and 2016, respectively.
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The purchase cost of those shares was deducted from equity within cost of treasury shares balance. The shares are held as
treasury shares.
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b.
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Employee Shares and Option Plans for Senior Employees of Subsidiaries:
|
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1)
|
Commencing in 2003 and on a semi-annual basis, the Board of Directors resolves to allot options to senior
managers and other senior employees based on the recommendations of the remuneration committee. In accordance with the Board of Directors resolution, and taking into consideration the number of shares available to the Company for the purpose
of allotment of options, the Company acquires Company shares in the Stock Exchange and grants the options against those shares.
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Commencing in 2012, the options are granted in accordance with the 2012 option plan (plan 2012). The options are exercisable in
three equal batches at every year-end in the 3 years from date of grant. The Board of Directors has the exclusive right to declare the exercise of the options at an earlier date, and with regards to senior office holders in accordance with
compensation policy, in extraordinary cases and under comprehensive consideration.
The exercise price of the option granted in accordance
with the said plans, as determined by the Board of Directors equals a third of the average purchase price paid by the Company for those shares. Options granted under this plan expire at the end of 6 years from date of grant. All tax liabilities
arising from grant of options and/or from exercise thereof apply to the employee. The number of shares granted when exercising each option, as well as the exercise price are adjusted in accordance with the changes in the Companys share
capital, including splits of shares, consolidation of shares, dividend distributed in shares and/or creation of new types of shares. This is excluding a number of exceptions where the employment relationship between the Company and an employee is
terminated; and in such cases, the employee is entitled to exercise all options exercisable at the date of termination of employment relationship within 90 days from the said date. The remaining unexercised options granted to the employee expire.
Options that are not exercisable at the time of termination of the employment relationship expire immediately upon termination of the relationship as above.
Commencing in 2013, the grant of options in accordance with plan 2012 to the Companys president and CEO (CEO) is included in
the equity component of the annual bonus; (for details regarding the compensation policy for the CEO, see Companys report dated June 27, 2013 (reference 2013-01-076263)). Commencing in 2014, and in accordance with plan 2012 to all senior
office holders including the Companys president and CEO is included in the equity component of the annual bonus; (for details regarding the compensation policy that was approved, see the Companys report dated December 29, 2013
(reference 2013-01-111694)).
The fair value of the options granted in 2012-2017, is based on the following assumptions: expected dividend
yield of 0.35%-0.44%, expected standard deviation of 16.94%-25.63%;
F-56
FRUTAROM INDUSTRIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 12EQUITY
(continued):
risk-free interest rate of 0.67%-3.26% (based on the expected term of the option until exercise): two years in respect of the first batch, three years in respect of the second batch and four
years in respect of the third batch.
The 2012 plan is managed in compliance with the provisions in Section 102 to the Israel Income
Tax Ordinance. In accordance with the tax alternative chosen by the Company and pursuant to the terms thereof, the company is allowed to deduct the work income component credited to employees, and is not entitled to claim the amounts credited to
employees as equity benefits.
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2)
|
The following is information on unexercised employee options granted under the 2012 plans as of
December 31, 2017:
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As of December 31, 2017, the remaining amount of compensation, computed as the excess or the fair value
of the said options granted to employees over the exercise price at the date of grant not yet recorded as expenses in the income statements is approximately $815 thousand. The said remaining compensation will be accelerated and charged to income
over the remaining vesting period.
The changes in the number of outstanding options and their related weighted average exercise prices are as follows:
The options granted under this plan are exercisable in three equal batches at the end of
each year commencing in the end of the second year from date of grant thereof. The Board of Directors has the exclusive authority to declare the exercise of the options at an earlier date. Options granted under these plans expire within six years
from date of grant. All tax liabilities arising from grant of options and/or from exercise thereof apply to the employee.
The number of
shares granted with exercising each option, as well as the exercise price are adjusted in accordance with the changes in the Companys share capital, including splits of shares, consolidation of shares, dividend distributed in shares and/or
creation of new types of shares. This is excluding a number of exceptions where the employment relationship between the Company and an employee is terminated; and in such cases the employee is entitled to exercise all options exercisable at the date
of termination of employment relationship within 90 days from the said date. The remaining unexercised options granted to the employee expire. Options that are not exercisable at the time of termination of the employment relationship expire
immediately upon termination of the relationship as above. As of this date, every two years, the Board decides on allocation of options to the management and senior employees, based on the recommendation of the compensation committee.
The exercise prices of the options under 2010 plan granted in 2012 are based on the average closing prices of the ten consecutive trading days
prior to a Boards resolution on such allocation. According to the Companys compensation committee approved on January 14, 2014 by the general meeting of the Companys shareholders, the exercise prices of any future allocation
of options under the 2010 plan shall not be less than the average closing rate of the Company shares in the 30 days preceding the Companys Board of Directors resolution regarding grant of options, plus 5%. The exercise price of
options granted in 2014 and 2016 is based on the compensation policy (applies to all offerees and not only to offerees who are subject to the compensation policy).
The fair value of the options at date of grantcomputed using the binomial model in respect to grants made in 2014 and 2016. This value is
based on the following assumptions: adjusted standard deviation of 23%-30% per year, risk-free interest rate of 0.13%-1.96% and termination rate (prior to end of the vesting period) of 11.1%-13.5%. This rate is based on a sample of the changes
in employment status and rank over several years prior to the grant.
The 2010 plan is managed in compliance with the provisions in Section 102 to the Israel Income Tax Ordinance.
The Group creates deferred taxes for equity grants that are in the scope of IFRS 2 Share Based Payment in accordance with the
proportionate part of the estimated amount deductible for tax purposes by the Group at date of exercise of benefit by the employee and in respect of which work services were provided by the employee through the date of the statement of financial
position (i.e., the estimated overall amount deductible for tax purposes divided by the overall vesting period and multiplied by the vesting period that has elapsed through the date of the statement of financial position). The said deferred taxes
are recognized in the income statement.
In determining the amount of retained earnings available for distribution as a dividend, the Companies Law stipulates that the cost of the
Companys shares acquired by Group companies (that are presented as a separate item on the statement of changes in shareholders equity) has to be deducted from the amount of retained earnings presented within equity.
The income of the Company and its Israeli subsidiaries (except for income of approved enterprises or benefited
enterprises, see c. below) is liable to normal corporate tax rate.
The Law for Change of National Priorities (Legislative
Amendments for the Achievement of Fiscal Objectives for 2013 and 2014), 2013, which was published in the official gazette on August 5, 2013, enacted, among other things, that the corporate tax rate will be 26.5% in 2014 and thereafter (as to
the increase of tax rates on income of preferred enterprises under the Encouragement of Capital Investment Law, 1959, see c. below).
In
January 2016, the Law for the Amendment of the Income Tax Ordinance (No. 216) was published, enacting a reduction of corporate tax rate beginning in 2016 and thereafter, from 26.5% to 25%.
In December 2016, the Economic Efficiency Law (Legislative Amendments for Implementing the Economic Policy for the 2017 and 2018 Budget Year),
2016 was published, introducing a gradual reduction in corporate tax rate from 25% to 23%. However, the law also included a temporary provision setting the corporate tax rate in 2017 at 24%. As a result, the corporate tax rate will be 24% in 2017
and 23% in 2018 and thereafter.
As a result of lowering tax rates as above (including the reduction of tax rates on the income of a
preferred enterprise, as indicated in b. below), no material change have taken place in deferred tax assets/liabilities of the Group.
Capital gains of the Company are liable to the corporate tax rate beginning in the tax year.
Subsidiaries that are incorporated outside of Israel are assessed for tax under the tax laws in their countries of residence. The principal tax
rates applicable to subsidiaries outside Israel are as follows:
Companies incorporated in the USAtax rate of 36%-42% (Commencing
2018 21%-27%)
Companies incorporated in the UKtax rate of 19% (April 2016 through March 2017 tax rate of 20%; commencing April 2017tax rate of
19%)
Under the law, including Amendment No. 60 to the law that was published in April 2005, by virtue of the
approved enterprise or benefited enterprise status granted to certain enterprises of the Company, and by virtue of the Foreign Investor Company status it was granted, Frutarom Ltd. is entitled to various tax
benefits.
The Economic Policy Law for 2011 and 2012 (Legislation Amendments), 2011, which was approved by the Knesset (the Israeli Parliament) on
December 29, 2010 includes an amendment to the Israel Capital Investments Encouragement Law, 1959 (hereinafterthe amendment). The amendment became effective on January 1, 2011.
The amendment sets out new benefit programs to replace those previously provided by the Encouragement of Capital Investment Law, 1959
(hereinafterthe Law) prior to the amendment, as follows: a grants program for entities in Development Area A, and two new tax benefit programs (preferred enterprise and special preferred enterprise), which mainly
provide a uniform tax rate on the entire preferred income of an entity, as the term preferred income is defined in the Law.
In December
2016, the Economic Efficiency Law (Legislative Amendments for Implementing the Economic Policy for the 2017 and 2018 Budget Year), 2016 was published, introducing two new benefit tracks for the hi-tech industry: preferred technology
enterprise and special preferred technology enterprise.
Frutarom Ltd elected to be governed by the amendment to the Law
beginning in 2011, and to take advantage of tax benefits under the preferred enterprise track.
According to the Law for
Change of National Priorities (Legislative Amendments for Achieving the Budgetary Objectives for 2013-2014), 2013, which was published in the Israeli government official gazette on August 5, 2013 (see a(2) above), the tax rate applicable to
preferred income in 2014 and thereafter is as follows: the tax rate applicable to income of companies whose enterprises are located in Development Zone A will be 9% and the tax rate imposed on companies whose enterprises are located other than in
Development Zone A will be 16%. As part of the Economic Efficiency Law (Legislative Amendments for Implementing the Economic Policy for the 2017 and 2018 Budget Year), 2016, which was published in December 2016, the tax rate applicable to preferred
income of companies whose enterprises are located in Development Zone A will be 7.5% in 2017 and thereafter.
Until the 2010 tax year, the
Company took advantage of tax benefits under the Encouragement of Capital Investments prior to its amendment, under which, income of the Company attributable to preferred enterprises or benefited enterprises it owns were
subject to reduced tax rates/tax exemption during the benefits period set by the Law.
In the event of cash dividend distribution from the
exempted income, the companies will be liable to pay tax on the grossed-up amount of distributed dividend, according to the tax rate that would have applied to the income in the year it was earned had no exemption been applicable.
Deferred taxes of foreign subsidiaries not in Israel are computed at the tax rates applicable to these companies (see b above).
Current taxes are computed in accordance with the statutory tax rates of Group entities around the world (see
above) and in accordance with relevant tax benefits in each country.
The Company and its Israeli subsidiaries have received final tax assessments through the 2009 tax year.
As mentioned in Note 2a, the Group prepares its financial statements in accordance with IFRS.
As also indicated in the said note, IFRS id different from Generally Accepted Accounting Principles in Israel (Israeli GAAP) and accordingly,
preparation of financial statements in accordance with IFRS may reflect a financial position, results of operations and cash flows that are materially different from the ones presented in financial statements presented in accordance with accounting
principles generally accepted in Israel.
In accordance with the Law for the Amendment of the Income Tax Ordinance (No. 174Temporary
Provisions for Tax Years 2007, 2008 and 2009), 2010 that was passed in the Knesset on January 25, 2010 and published in the official gazette on February, 4, 2010 (hereafterthe amendment to the ordinance), Accounting Standard No. 29
that was issued by the Israel Accounting Standard Board would not be used for determining the taxable income for tax purposes in respect of tax years 2007-2011; this would be the case even if the said accounting standard was applied for the said tax
years in the financial statements.
The meaning of the amendment to the ordinance is that IFRS would actually not be used in
computation of the taxable income for the said tax years.
On October 31, 2011, the Government of Israel published a law memorandum in
connection with the amendment to the Income Tax Ordinance (hereafterthe law memorandum) resulting from application of IFRS in the financial statements. The law memorandum adopts IFRS in principle. Nevertheless, the law memorandum suggests
making several amendments to the Income Tax Ordinance, which will serve to clarify and determine the manner of computation of taxable income for tax purposes in cases where the manner of computation is not clear and IFRS do not correspond with the
tax principles applied in Israel. At the same time, the law memorandum generally adopts IFRS. The legislation procedures relating to the law memorandum have not yet been completed and it is doubtful whether they will be completed in the near future.
Since the legislative proceedings relating to the law memorandum have not yet been completed, the Company estimates that the term of the
temporary provision for 2007 to 2013 will be extended to 2014-2017 as well. Therefore, the Groups management expects that, at this stage, the new legislation will not apply to tax years preceding 2018.
On December 22, 2017, the President of the United States signed into law a legislation that overhauls the US tax system (the
reform). The reform introduced significant changes to US tax law, including several provisions that are expected to have impact on the tax liability of the Company in the US.
The following are provisions in the reform that are relevant to the Company:
The
impact on the financial statements of the Company as of December 31, 2017 and for the year then ended, as a result of the reform becoming effective, is as follows:
Deferred tax liabilities were reduced by $4,249 thousand due to the tax rate reduction, which was recognized against deferred tax income in
profit or loss.
As mentioned above, as of December 31, 2017, the Group is in compliance with those covenants.